Merck & Co Annual Report 2011

FY2011 Annual Report · Merck & Co

Loading PDF…

(MARK ONE)
Í

‘

As filed with the Securities and Exchange Commission on February 28, 2012

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2011

Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from

Commission File No. 1-6571

Merck & Co., Inc.
One Merck Drive
Whitehouse Station, N. J. 08889-0100
(908) 423-1000

Incorporated in New Jersey

I.R.S. Employer
Identification No. 22-1918501

Securities Registered pursuant to Section 12(b) of the Act:

Title of Each Class

Common Stock ($0.50 par value)

Name of Each Exchange
on which Registered

New York Stock Exchange

Number of shares of Common Stock ($0.50 par value) outstanding as of January 31, 2012: 3,044,008,396.
Aggregate market value of Common Stock ($0.50 par value) held by non-affiliates on June 30, 2011 based on closing price on June 30,

2011: $108,759,000,000.

Indicate by check mark if

Act. Yes Í No ‘

Indicate by check mark if

Act. Yes ‘ No Í

the registrant

is a well-known seasoned issuer, as defined in Rule 405 of

the Securities

the registrant

is not

required to file reports pursuant

to Section 13 or Section 15(d) of

the

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes Í No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One):
Í
Large accelerated filer

Smaller reporting company ‘

Non-accelerated filer

Accelerated filer

‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í

(Do not check if a smaller reporting company)

Documents Incorporated by Reference:

Document

Proxy Statement for the Annual Meeting of
Shareholders to be held May 22, 2012, to be filed with the
Securities and Exchange Commission within 120 days after the
close of the fiscal year covered by this report

Part of Form 10-K

Part III

Table of Contents

Part I

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cautionary Factors that May Affect Future Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Executive Officers of the Registrant

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
(a) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Report

Part III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . .
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consent of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Part IV

Page

1
21
33
34
34
34
34
34

38
41
42
82
83
83
87
147
148
149
149
149
150

151
151

151
151
152

152
158
159

Item 1. Business.

PART I

Merck & Co., Inc. (“Merck” or the “Company”) is a global health care company that delivers innovative
health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care
products, which it markets directly and through its joint ventures. The Company’s operations are principally
managed on a products basis and are comprised of four operating segments, which are the Pharmaceutical, Animal
Health, Consumer Care and Alliances segments, and one reportable segment, which is the Pharmaceutical segment.
The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly
by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and
preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these
human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies
and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other
institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered
at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers,
physician distributors and government entities. The Company also has animal health operations that discover,
develop, manufacture and market animal health products,
including vaccines, which the Company sells to
veterinarians, distributors and animal producers. Additionally, the Company has consumer care operations that
develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through
wholesale and retail drug, food chain and mass merchandiser outlets.

For financial

the Pharmaceutical segment, see Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial
Statements and Supplementary Data” below.

information and other information about

All product or service marks appearing in type form different from that of the surrounding text are
trademarks or service marks owned, licensed to, promoted or distributed by Merck, its subsidiaries or affiliates,
except as noted. All other trademarks or services marks are those of their respective owners.

Overview

During 2011, the Company focused on accelerating revenue growth, reducing costs to drive efficiencies,
allocating resources to drive future growth by making strategic investments in product launches, as well as in the
emerging markets, and advancing and augmenting its research and development pipeline.

Worldwide sales totaled $48.0 billion in 2011, an increase of 4% compared with $46.0 billion in 2010.
Foreign exchange favorably affected global sales performance by 2%. The revenue increase was driven largely by
growth in Januvia (sitagliptin) and Janumet (sitagliptin/metformin hydrochloride HCI), treatments for type 2
diabetes, Singulair (montelukast sodium), a medicine for the chronic treatment of asthma and the relief of
symptoms of allergic rhinitis, Isentress (raltegravir), an antiretroviral therapy for use in combination therapy for the
treatment of HIV-1 infection, Gardasil [human papillomavirus quadrivalent (types 6, 11, 16 and 18) vaccine,
recombinant], a vaccine to help prevent certain diseases caused by four types of human papillomavirus (“HPV”),
Simponi (golimumab), a treatment for inflammatory diseases, RotaTeq [Rotavirus Vaccine, Live, Oral, Pentavalent],
a vaccine to help protect against rotavirus gastroenteritis in infants and children, Zetia (ezetimibe), a cholesterol
absorption inhibitor, Pneumovax [pneumococcal vaccine polyvalent], a vaccine to help prevent pneumococcal
disease, and Bridion (sugammadex), for the reversal of certain muscle relaxants used during surgery. In addition,
revenue in 2011 benefited from higher sales of the Company’s animal health products and from the launch of
Victrelis (boceprevir), a treatment for chronic hepatitis C. These increases were partially offset by lower sales of
Cozaar (losartan potassium) and Hyzaar (losartan potassium and hydrochlorothiazide), treatments for hypertension,
which lost patent protection in the United States in April 2010 and in a number of major European markets in
March 2010, as well as by lower sales of Caelyx, Subutex and Suboxone as the Company no longer has marketing
rights to these products. Revenue was also negatively affected by lower sales of Vytorin (ezetimibe/simvastatin), a
cholesterol modifying medicine, Temodar (temozolomide), a treatment for certain types of brain tumors, ProQuad
[Measles, Mumps, Rubella and Varicella Virus Vaccine Live], a pediatric combination vaccine to help protect
against measles, mumps, rubella and varicella, and Varivax [Varicella Virus Vaccine Live], a vaccine to help

prevent chickenpox (varicella). In addition, as discussed below, the ongoing implementation of certain provisions of
U.S. health care reform legislation during 2011 resulted in further increases in Medicaid rebates and other impacts
that reduced revenues. Additionally, many countries in the European Union (the “EU”) have undertaken austerity
measures aimed at reducing costs in health care and have implemented pricing actions that negatively impacted
sales in 2011.

In April 2011, Merck and Johnson & Johnson (“J&J”) reached an agreement to amend the agreement
governing the distribution rights to Remicade (infliximab) and Simponi. This agreement concluded the arbitration
proceeding J&J initiated in May 2009. Under the terms of the amended distribution agreement, Merck relinquished
marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the
Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout
Europe, Russia and Turkey (the “Retained Territories”). The Retained Territories represented approximately 70% of
Merck’s 2010 revenue of $2.8 billion from Remicade and Simponi. In addition, beginning July 1, 2011, all profits
derived from Merck’s exclusive distribution of the two products in the Retained Territories are being equally
divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011.

During 2011, the Company continued the advancement of drug candidates through its pipeline. Victrelis,
the Company’s innovative oral medicine for the treatment of chronic hepatitis C, was approved by the U.S. Food
and Drug Administration (the “FDA”) and the European Commission (the “EC”). The FDA also approved Juvisync
(sitagliptin and simvastatin), a new treatment for type 2 diabetes that combines the active ingredient in the glucose-
lowering medication Januvia with the cholesterol-lowering medication Zocor (simvastatin). In addition, the EC
approved Zoely (NOMAC/E2), a monophasic combined oral contraceptive tablet for use by women to prevent
pregnancy. Cubicin, an antibacterial agent with activity against methicillin-resistant Staphylococcus aureus
(“MRSA”), for which the Company has licensed development and distribution rights in Japan, was approved for use
in that country.

In February 2012, the FDA approved Janumet XR (sitagliptin and metformin HCI extended-release), a
new treatment for type 2 diabetes that combines sitagliptin, which is the active component of Januvia, with
extended-release metformin in a once-daily formulation; Cosopt PF (dorzolamide hydrochloride-timolol maleate
ophthalmic solution) 2.0%/0.5%, Merck’s preservative-free formulation of Cosopt, indicated for the reduction of
elevated intraocular pressure in appropriate patients with open-angle glaucoma or ocular hypertension; and Zioptan
(tafluprost ophthalmic solution), a preservative-free prostaglandin analogue ophthalmic solution.

The Company also received additional indications for several of its existing products. During 2011, the
FDA approved an expanded age indication for Zostavax [Zoster Vaccine Live], a vaccine to help prevent shingles
(herpes zoster), to include adults ages 50 to 59. In addition, the FDA approved Sylatron (peginterferon alfa-2b) for
Injection for the adjuvant treatment of melanoma in patients with microscopic or gross nodal involvement. Also,
Simponi received an indication in the EU for use in combination with methotrexate in adults with severe, active and
progressive rheumatoid arthritis not previously treated with methotrexate, having been shown to reduce the rate of
progression of joint damage as measured by X-ray and to improve physical function. In January 2012, the FDA
approved the use of Isentress, in combination with other antiretroviral medicines, for the treatment of HIV-1
infection in pediatric patients two years of age and older and weighing at least 10 kg.

The Company currently has two candidates under review with the FDA: MK-8669, ridaforolimus, for the
treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable response to chemotherapy and
MK-0653C, Zetia combined with atorvastatin for the treatment of primary or mixed hyperlipidemia. MK-8669 is
also under review in the EU.

The Company currently has 19 candidates in Phase III development and anticipates filing a New Drug
Application (“NDA”) with the FDA with respect to certain of these candidates in 2012 including MK-4305,
suvorexant, an investigational treatment for insomnia; MK-8616, Bridion, a medication for the reversal of certain
muscle relaxants used during surgery; and V503, a nine-valent HPV vaccine. The Company also anticipates filings
in 2013 for, among others, MK-0822, odanacatib, an investigational treatment for osteoporosis, and MK-0524A,
Tredaptive (extended-release niacin/laropiprant/simvastatin), which is under development for the treatment of
atherosclerosis.

During 2011,

Merck continues to pursue opportunities that have the potential to drive both near- and long-term growth.
Inspire

the Company completed a variety of

including the acquisition of

transactions

Pharmaceuticals, Inc., a specialty pharmaceutical company focused on developing and commercializing ophthalmic
products. Additionally, the Company entered into transactions designed to strengthen its presence in emerging
markets in the longer term.

Merck continues to realize cost savings across all areas of the Company. These savings result from
various actions, including the Merger Restructuring Program discussed below, previously announced ongoing cost
reduction activities, as well as from non-restructuring-related activities. As of the end of 2011, the Company has
realized approximately $2.9 billion in annual net cost savings from these activities since the merger of legacy
Merck & Co., Inc. and Schering-Plough Corporation (“Schering-Plough”) on November 3, 2009 (the “Merger”).

In July 2011, the Company announced the latest phase of its global restructuring program (the “Merger
Restructuring Program”) that was initiated in conjunction with the integration of the legacy Merck and legacy
Schering-Plough businesses. This Merger Restructuring Program is intended to optimize the cost structure of the
combined company. As part of this latest phase, the Company expects to reduce its workforce measured at the time
of the Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions
in this phase of
the Merger Restructuring Program relate to manufacturing (including Animal Health),
administrative and headquarters organizations. Previously announced workforce reductions of approximately 17%
in earlier phases of the program primarily reflect
the elimination of positions in sales, administrative and
headquarters organizations, as well as from the sale or closure of certain manufacturing and research and
development sites and the consolidation of office facilities. The Company will continue to hire employees in
strategic growth areas of the business as necessary. The Company will continue to pursue productivity efficiencies
and evaluate its manufacturing supply chain capabilities on an ongoing basis which may result
in future
restructuring actions. The Company recorded total pretax restructuring costs of $1.8 billion in 2011, $1.8 billion in
2010 and $1.5 billion in 2009 related to this program. The restructuring actions under the Merger Restructuring
Program are expected to be substantially completed by the end of 2013, with the exception of certain actions,
principally manufacturing-related, which are expected to be substantially completed by 2015, with the total
cumulative pretax costs estimated to be approximately $5.8 billion to $6.6 billion. The Company estimates that
approximately two-thirds of the cumulative pretax costs relate to cash outlays, primarily related to employee
separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the
accelerated depreciation of facilities to be closed or divested. The Company expects the Merger Restructuring
Program to yield annual savings by the end of 2013 of approximately $3.5 billion to $4.0 billion and annual savings
upon completion of the program of approximately $4.0 billion to $4.6 billion.

During 2011, the Company continued to be affected by the U.S. health care reform legislation that was
enacted in 2010 as additional provisions went into effect. Beginning in 2011, the law requires pharmaceutical
manufacturers to pay a 50% discount to Medicare Part D beneficiaries when they are in the Medicare Part D
coverage gap (i.e., the so-called “donut hole”). Approximately $150 million was recorded as a reduction to revenue
in 2011 related to the estimated impact of this provision of health care reform. Also, the Company recorded $162
million of expenses for the annual health care reform fee, which the Company was required to pay beginning in
2011. The law also increased mandated Medicaid rebates, which reduced revenues by approximately $179 million
and $170 million in 2011 and 2010, respectively.

Effective December 1, 2011, Richard T. Clark, chairman, retired from the Company and the Merck
Board of Directors. Kenneth C. Frazier, Merck’s president and chief executive officer, was elected by the Board to
serve as chairman following Mr. Clark’s retirement.

In November 2011, Merck’s Board of Directors raised the Company’s quarterly dividend to $0.42 per

share from $0.38 per share.

Earnings per common share assuming dilution attributable to common shareholders (“EPS”) for 2011
were $2.02, which reflect a net unfavorable impact resulting from acquisition-related costs, restructuring costs, as
well as the charge related to the settlement of the arbitration proceeding with J&J discussed above, partially offset
by the favorable impact of certain tax items and gains on the disposition of the Company’s interest in the Johnson &
Johnson°Merck Consumer Pharmaceuticals Company joint venture and the sale of certain manufacturing facilities
and related assets. Non-GAAP EPS in 2011 were $3.77 excluding these items (see “Non-GAAP Income and
Non-GAAP EPS” below).

Product Sales

Sales(1) of the Company’s products were as follows:

Years Ended December 31

Pharmaceutical:
Cardiovascular

Zetia
Vytorin
Integrilin

Diabetes and Obesity

Januvia
Janumet

Diversified Brands
Cozaar/Hyzaar
Zocor
Propecia
Claritin Rx
Remeron
Vasotec/Vaseretic
Proscar

Infectious Disease

Isentress
PegIntron
Cancidas
Primaxin
Invanz
Avelox
Noxafil
Crixivan/Stocrin
Rebetol
Victrelis

Neurosciences and Ophthalmology

Maxalt
Cosopt/Trusopt

Oncology

Temodar
Emend
Intron A

Respiratory and Immunology

Singulair
Remicade
Nasonex
Clarinex
Arcoxia
Simponi
Asmanex
Proventil
Dulera
Vaccines(2)
Gardasil
ProQuad/M-M-R II/Varivax
RotaTeq
Pneumovax
Zostavax

Women’s Health and Endocrine

Fosamax
NuvaRing
Follistim AQ
Implanon
Cerazette

Other pharmaceutical(3)

Total Pharmaceutical segment sales

Other segment sales(4)
Total segment sales

Other(5)

2011

2010

2009

$ 2,428
1,882
230

$ 2,297
2,014
266

3,324
1,363

1,663
456
447
314
241
231
223

1,359
657
640
515
406
322
230
192
174
140

639
477

935
419
194

5,479
2,667
1,286
621
431
264
206
155
96

1,209
1,202
651
498
332

2,385
954

2,104
468
447
296
223
255
216

1,090
737
611
610
362
316
198
206
221
—

550
484

1,065
378
209

4,987
2,714
1,219
623
398
97
208
210
8

988
1,378
519
376
243

403
441
46

1,922
658

3,561
558
440
71
38
311
291

752
149
617
689
293
66
34
206
36
—

575
503

188
317
38

4,660
431
165
101
358
4
37
26
—

1,118
1,369
522
346
277

855
623
530
294
268
3,521
41,289
6,327
47,616
431
$48,047

926
559
528
236
209
3,879
39,267
6,059
45,326
661
$45,987

1,100
88
96
37
35
1,263
25,236
2,114
27,350
78
$27,428

(1) Sales of legacy Schering-Plough products in 2009 are included only for the post-Merger period. In addition, prior to the Merger, substantially all sales of
Zetia and Vytorin were recognized by the MSP Partnership and the results of Merck’s interest in the MSP Partnership were recorded in Equity income
from affiliates. As a result of the Merger, the MSP Partnership became wholly owned by the Company; accordingly, all sales of MSP Partnership
products after the Merger are reflected in the table above. Sales of Zetia and Vytorin in 2009 reflect Merck’s sales of these products in Latin America
which was not part of the MSP Partnership, as well as sales of these products for the post-Merger period in 2009.

(2) These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the

results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

(3) Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed

separately.

(4) Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily
relating to sales of Nexium, as well as Prilosec. Revenue from AZLP was $1.2 billion, $1.3 billion and $1.4 billion in 2011, 2010 and 2009, respectively.

(5) Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or

businesses and other supply sales not included in segment results.

Pharmaceutical

The Company’s pharmaceutical products include therapeutic and preventive agents, generally sold by
prescription, for the treatment of human disorders. Certain of the products within the Company’s franchises are as
follows:

Cardiovascular: Zetia (marketed as Ezetrol outside the United States); Vytorin (marketed as Inegy
outside the United States); and Integrilin (eptifibatide) Injection, a treatment for patients with acute coronary
syndrome.

Diabetes and Obesity:

Januvia and Janumet for the treatment of type 2 diabetes.

Diversified Brands: Cozaar; Hyzaar; Zocor; Propecia (finasteride), a product for the treatment of male
pattern hair loss; Claritin Rx (loratadine) for treatment of seasonal outdoor allergies and year-round indoor
allergies; Remeron (mirtazapine), an antidepressant; Vasotec (enalapril maleate) and Vaseretic (enalapril maleate-
hydrochlorothiazide), hypertension and/or heart failure products; and Proscar (finasteride), a urology product for
the treatment of symptomatic benign prostate enlargement.

Infectious Disease:

Isentress; PegIntron (peginterferon alpha-2b), a treatment for chronic hepatitis C;
Cancidas (caspofungin acetate), an anti-fungal product; Primaxin (imipenem and cilastatin sodium), an anti-
bacterial product; Invanz (ertapenem sodium) for the treatment of certain infections; Avelox (moxifloxacin), which
the Company only markets in the United States, a broad-spectrum fluoroquinolone antibiotic for certain respiratory
and skin infections; Noxafil (posaconazole) for the prevention of invasive fungal infections; Crixivan (indinavir
sulfate) and Stocrin (efavirenz), antiretroviral therapies for the treatment of HIV infection; Rebetol (ribavirin, USP)
Capsules and Oral Solution for use in combination with PegIntron or Intron A (interferon alpha-2b, recombinant)
for treating chronic hepatitis C; and Victrelis.

Neurosciences and Ophthalmology: Maxalt (rizatriptan benzoate), a product for acute treatment of

migraine; and Cosopt and Trusopt (dorzolamide hydrochloride ophthalmic solution), ophthalmic products.

Oncology: Temodar (marketed as Temodal outside the United States); Emend (aprepitant) for the
prevention of chemotherapy-induced and post-operative nausea and vomiting; and Intron A for Injection, marketed
for chronic hepatitis B and C and numerous anticancer indications worldwide, including as adjuvant therapy for
malignant melanoma.

Respiratory and Immunology:

Singulair; Remicade; Nasonex (mometasone furoate monohydrate), an
inhaled nasal corticosteroid for the treatment of nasal allergy symptoms; Clarinex (desloratadine), a non-sedating
antihistamine; Arcoxia (etoricoxib) for the treatment of arthritis and pain; Simponi; Asmanex Twisthaler
(mometasone furoate inhalation powder), an oral dry-powder corticosteroid inhaler for first-line maintenance
treatment of asthma in patients 4 and older; Proventil HFA (albuterol sulfate) inhalation aerosol for the relief of
bronchospasm in patients 12 years or older; and Dulera Inhalation Aerosol (mometasone furoate/formoterol
fumarate dihydrate), a fixed-dose combination asthma treatment in patients 12 years of age or older.

Vaccines: Gardasil; ProQuad; M-M-R II [Measles, Mumps and Rubella Virus Vaccine Live], a
vaccine to help prevent measles, mumps and rubella; Varivax; RotaTeq; Pneumovax; and Zostavax, a vaccine to
help prevent shingles (herpes zoster) in patients aged 50 and older.

Women’s Health and Endocrine: Fosamax (alendronate sodium) for the treatment and prevention of
osteoporosis; NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), a vaginal contraceptive ring; Follistim AQ
(follitropin beta injection), a biological fertility treatment; Implanon (etonogestrel implant), a single-rod subdermal
contraceptive implant; and Cerazette (desogestrel), a progestin only oral contraceptive.

Animal Health

The Animal Health segment discovers, develops, manufactures and markets animal health products,

including vaccines. Principal marketed products in this segment include:

Livestock Products: Nuflor antibiotic range for use in cattle and swine; Bovilis/Vista vaccine lines for
infectious diseases in cattle; Banamine bovine and swine anti-inflammatory; Estrumate for the treatment of fertility
disorders in cattle; Regumate/Matrix fertility management for swine and horses; Resflor combination broad-
spectrum antibiotic and non-steroidal anti-inflammatory drug for bovine respiratory disease; Zilmax and Revalor to

improve production efficiencies in beef cattle; M+Pac swine pneumonia vaccine; and Porcilis vaccine line for
infectious diseases in swine.

Poultry Products: Nobilis/Innovax, vaccine lines for poultry; and Paracox and Coccivac coccidiosis

vaccines.

Companion Animal Products: Nobivac/Continuum vaccine lines for flexible dog and cat vaccination;
Otomax/Mometamax/Posatex ear ointments for acute and chronic otitis; Caninsulin/Vetsulin diabetes mellitus
treatment for dogs and cats; Panacur/Safeguard broad-spectrum anthelmintic (de-wormer) for use in many animals;
and Scalibor/Exspot for protecting against bites from fleas, ticks, mosquitoes and sandflies.

Aquaculture Products:

Slice parasiticide for sea lice in salmon; Aquavac/Norvax vaccines against

bacterial and viral disease in fish; Compact PD vaccine for salmon; and Aquaflor antibiotic for farm-raised fish.

Consumer Care

The Consumer Care segment develops, manufactures and markets over-the-counter, foot care and sun

care products. Principal products in this segment include:

Over-the-Counter Products: Claritin non-drowsy antihistamines; MiraLAX treatment for occasional
constipation; Coricidin HBP decongestant-free cold/flu medicine for people with high blood pressure; Afrin nasal
decongestant spray; and Zegerid OTC treatment for frequent heartburn.

Foot Care: Dr. Scholl’s foot care products; Lotrimin topical antifungal products; and Tinactin topical

antifungal products and foot and sneaker odor/wetness products.

Sun Care: Coppertone sun care lotions, sprays and dry oils.

For a further discussion of sales of the Company’s products, see Item 7. “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” below.

Product Approvals

In February 2012, the FDA approved Zioptan (tafluprost), a preservative-free prostaglandin analog
ophthalmic solution for reducing elevated intraocular pressure in patients with open-angle glaucoma or ocular
hypertension. Merck has exclusive commercial rights to tafluprost in Western Europe (excluding Germany), North
America, South America, Africa, the Middle East, India and Australia. Zioptan is marketed as Saflutan in certain
markets outside the United States.

Also, in February 2012, the FDA approved Janumet XR, a new treatment for type 2 diabetes that
combines sitagliptin, which is the active component of Januvia, with extended-release metformin. Janumet XR
provides a convenient once-daily treatment option for health care providers and patients who need help to control
their blood sugar.

In addition, in February 2012, the FDA approved Cosopt PF, Merck’s preservative-free formulation of
Cosopt ophthalmic solution, indicated for the reduction of elevated intraocular pressure in appropriate patients with
open-angle glaucoma or ocular hypertension.

In October 2011, the FDA approved Juvisync, a new treatment for type 2 diabetes that combines the
glucose-lowering medication sitagliptin with the cholesterol-lowering medication Zocor. Juvisync is the first
treatment option for health care providers to help patients who need the blood sugar-lowering benefits of a DPP-4
inhibitor and the cholesterol-lowering benefits of simvastatin, with the convenience of a single tablet once daily.

In August 2011, Zoely, an oral contraceptive, was granted marketing authorization by the EC for use by
women to prevent pregnancy. Zoely is a combined oral contraceptive tablet containing a unique monophasic
combination of two hormones: nomegestrol acetate, a highly selective progesterone-derived progestin, and 17-beta
estradiol, an estrogen that is similar to the one naturally present in a woman’s body. The marketing authorization of
Zoely applies to all 27 EU member states plus Iceland, Liechtenstein and Norway. Teva Pharmaceutical Industries
Ltd. holds exclusive marketing rights for Zoely in France, Italy, Belgium and Spain.

In May 2011, the FDA approved Victrelis, the Company’s innovative oral medicine for the treatment of
chronic hepatitis C. Victrelis is approved for the treatment of chronic hepatitis C genotype 1 infection, in
combination with peginterferon alfa and ribavirin, in adult patients (18 years of age and older) with compensated
liver disease, including cirrhosis, who are previously untreated or who have failed previous interferon and ribavirin
therapy. Victrelis is an antiviral agent designed to interfere with the ability of the hepatitis C virus to replicate by
inhibiting a key viral enzyme. In July 2011, the EC approved Victrelis. The EC’s decision grants a single marketing
authorization that is valid in the 27 countries that are members of the EU, as well as unified labeling applicable to
Iceland, Liechtenstein and Norway. In addition to the United States, Victrelis has been launched in 19 markets
including France, Germany, Canada and Brazil.

Joint Ventures

AstraZeneca LP

In 1982, Merck entered into an agreement with Astra AB (“Astra”) to develop and market Astra products
in the United States. In 1994, Merck and Astra formed an equally owned joint venture that developed and marketed
most of Astra’s new prescription medicines in the United States including Prilosec (omeprazole), the first in a class
of medications known as proton pump inhibitors, which slows the production of acid from the cells of the stomach
lining.

In 1998, Merck and Astra restructured the joint venture whereby Merck acquired Astra’s interest in the
joint venture, renamed KBI Inc. (“KBI”), and contributed KBI’s operating assets to a new U.S. limited partnership
named Astra Pharmaceuticals, L.P. (the “Partnership”), in exchange for a 1% limited partner interest. Astra
contributed the net assets of its wholly owned subsidiary, Astra USA, Inc., to the Partnership in exchange for a 99%
general partner interest. The Partnership, renamed AstraZeneca LP (“AZLP”) upon Astra’s 1999 merger with
Zeneca Group Plc, became the exclusive distributor of the products for which KBI retained rights.

The Company earns certain Partnership returns as well as ongoing revenue based on sales of current and
future KBI products. The Partnership returns include a priority return provided for in the Partnership Agreement, a
preferential return representing the Company’s share of undistributed Partnership AZLP generally accepted
accounting principles (“GAAP”) earnings, and a variable return related to the Company’s 1% limited partner
interest.

In conjunction with the 1998 restructuring discussed above, Astra purchased an option (the “Asset
Option”) for a payment of $443 million, which was recorded as deferred income, to buy Merck’s interest in the KBI
products, excluding the gastrointestinal medicines Nexium and Prilosec (the “Non-PPI Products”). In April 2010,
AstraZeneca exercised the Asset Option. Merck received $647 million from AstraZeneca representing the net
present value as of March 31, 2008 of projected future pretax revenue to be received by Merck from the Non-PPI
Products, which was recorded as a reduction to the Company’s investment in AZLP. The Company recognized the
$443 million of deferred income in 2010 as a component of Other (income) expense, net. In addition, in 1998,
Merck granted Astra an option (the “Shares Option”) to buy Merck’s common stock interest in KBI and, through it,
Merck’s interest in Nexium and Prilosec, exercisable in 2012. The exercise price for the Shares Option will be
primarily based on the net present value of projected future pretax revenue to be received by Merck from Nexium
and Prilosec as determined at the time of exercise, subject to certain true-up mechanisms. The Company believes
that it is likely that AstraZeneca will exercise the Shares Option.

Sanofi Pasteur MSD

In 1994, Merck and Pasteur Mérieux Connaught (now Sanofi Pasteur S.A.) formed a joint venture to
market human vaccines in Europe and to collaborate in the development of combination vaccines for distribution in
the then-existing EU and the European Free Trade Association. Merck and Sanofi Pasteur contributed, among other
things, their European vaccine businesses for equal shares in the joint venture, known as Pasteur Mérieux MSD,
S.N.C. (now Sanofi Pasteur MSD, S.N.C.). The joint venture maintains a presence, directly or through affiliates or
branches,
the Netherlands,
Switzerland and the United Kingdom and through distributors in the rest of its territory.

in Belgium, Italy, Germany, Spain, France, Austria, Ireland, Sweden, Portugal,

Licenses

In 1998, a subsidiary of Schering-Plough entered into a licensing agreement with Centocor Ortho Biotech
Inc. (“Centocor”), a J&J company, to market Remicade, which is prescribed for the treatment of inflammatory
diseases. In 2005, Schering-Plough’s subsidiary exercised an option under its contract with Centocor for license
rights to develop and commercialize Simponi, a fully human monoclonal antibody. The Company had exclusive
marketing rights to both products outside the United States, Japan and certain other Asian markets. In December
2007, Schering-Plough and Centocor
regarding the development,
commercialization and distribution of both Remicade and Simponi, extending the Company’s rights to exclusively
market Remicade to match the duration of the Company’s exclusive marketing rights for Simponi. In addition,
Schering-Plough and Centocor agreed to share certain development costs relating to Simponi’s auto-injector
delivery system. On October 6, 2009, the EC approved Simponi as a treatment for rheumatoid arthritis and other
immune system disorders in two presentations — a novel auto-injector and a prefilled syringe. As a result, the
Company’s marketing rights for both products extend for 15 years from the first commercial sale of Simponi in the
EU following the receipt of pricing and reimbursement approval within the EU.

revised their distribution agreement

In April 2011, Merck and J&J reached an agreement to amend the agreement governing the distribution
rights to Remicade and Simponi. This agreement concluded the arbitration proceeding J&J initiated in May 2009.
Under the terms of the amended distribution agreement, Merck relinquished marketing rights for Remicade and
Simponi to J&J in territories including Canada, Central and South America, the Middle East, Africa and Asia
Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe, Russia and Turkey
(the “Retained Territories”). In addition, beginning July 1, 2011, all profits derived from Merck’s exclusive
distribution of the two products in the Retained Territories are being equally divided between Merck and J&J.
Under the prior terms of the distribution agreement, the contribution income (profit) split, which was at 58% to
Merck and 42% percent to J&J, would have declined for Merck and increased for J&J each year until 2014, when it
would have been equally divided. J&J also received a one-time payment from Merck of $500 million in April 2011.

Competition and the Health Care Environment

Competition

The markets in which the Company conducts its business and the pharmaceutical industry are highly
competitive and highly regulated. The Company’s competitors include other worldwide research-based
pharmaceutical companies, smaller research companies with more limited therapeutic focus, and generic drug and
consumer health care manufacturers. The Company’s operations may be affected by technological advances of
competitors,
industry consolidation, patents granted to competitors, competitive combination products, new
products of competitors, the generic availability of competitors’ branded products, new information from clinical
trials of marketed products or post-marketing surveillance and generic competition as the Company’s products
mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be
highly uncertain. An adverse result in a patent dispute can preclude commercialization of products or negatively
affect sales of existing products and could result in the recognition of an impairment charge with respect to certain
products. Competitive pressures have intensified as pressures in the industry have grown. The effect on operations
of competitive factors and patent disputes cannot be predicted.

Pharmaceutical competition involves a rigorous search for technological innovations and the ability to
market these innovations effectively. With its long-standing emphasis on research and development, the Company
is well positioned to compete in the search for technological innovations. Additional resources required to meet
market challenges include quality control, flexibility to meet customer specifications, an efficient distribution
system and a strong technical information service. The Company is active in acquiring and marketing products
through external alliances, such as joint ventures and licenses, and has been refining its sales and marketing efforts
to further address changing industry conditions. However, the introduction of new products and processes by
competitors may result in price reductions and product displacements, even for products protected by patents. For
example, the number of compounds available to treat a particular disease typically increases over time and can
result in slowed sales growth for the Company’s products in that therapeutic category.

The highly competitive animal health business is affected by several factors including regulatory and
legislative issues, scientific and technological advances, product innovation, the quality and price of the Company’s
products, effective promotional efforts and the frequent introduction of generic products by competitors.

The Company’s consumer care operations face competition from other consumer health care businesses
as well as retailers who carry their own private label brands. The Company’s competitive position is affected by
several factors, including regulatory and legislative issues, scientific and technological advances, the quality and
price of the Company’s products, promotional efforts and the growth of lower cost private label brands.

Health Care Environment

Global efforts toward health care cost containment continue to exert pressure on product pricing and
market access. In the United States, federal and state governments for many years also have pursued methods to
reduce the cost of drugs and vaccines for which they pay. For example, federal laws require the Company to pay
specified rebates for medicines reimbursed by Medicaid and to provide discounts for outpatient medicines
purchased by certain Public Health Service entities and “disproportionate share” hospitals (hospitals meeting certain
criteria). Under the Federal Vaccines for Children entitlement program, the U.S. Centers for Disease Control and
Prevention funds and purchases recommended pediatric vaccines at a public sector price for the immunization of
Medicaid-eligible, uninsured, Native American and certain underinsured children. Merck is contracted to provide its
pediatric vaccines to this program.

Against this backdrop, the United States enacted major health care reform legislation in 2010, which
began to be implemented in 2011. Various insurance market reforms advanced in 2011 and will continue through
full implementation in 2014. The new law is expected to expand access to health care to more than 32 million
Americans by the end of the decade who did not previously have regular access to health care. With respect to the
effect of the law on the pharmaceutical industry, the law increased the mandated Medicaid rebate from 15.1% to
23.1%, expanded the rebate to Medicaid managed care utilization, and increased the types of entities eligible for the
federal 340B drug discount program. The law also requires pharmaceutical manufacturers to pay a 50% discount to
Medicare Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”).
Also, pharmaceutical manufacturers are now required to pay an annual health care reform fee. The total annual
industry fee was $2.5 billion in 2011 and will be $2.8 billion in 2012. The fee is assessed on each company in
proportion to its share of sales to certain government programs, such as Medicare and Medicaid.

The Company also faces increasing pricing pressure globally from managed care organizations,
government agencies and programs that could negatively affect the Company’s sales and profit margins. In the
United States, these include (i) practices of managed care groups and institutional and governmental purchasers, and
(ii) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug
Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act. Changes to the
health care system enacted as part of health care reform in the United States, as well as increased purchasing power
of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further
pricing pressures.

In addition, in the effort to contain the U.S. federal deficit, the pharmaceutical industry could be
considered a potential source of savings via legislative proposals that have been debated but not enacted in prior
years. These types of revenue generating or cost saving proposals include direct price controls in the Medicare
prescription drug program (Part D). In addition, Congress may again consider proposals to allow, under certain
conditions, the importation of medicines from other countries. It remains very uncertain as to what proposals, if any,
may be included as part of future federal budget deficit reduction proposals that would directly or indirectly affect
the Company.

In 2011 and 2010, global efforts toward health care cost containment were intense in several European
countries. Many countries have announced austerity measures, which include the implementation of pricing actions
to reduce prices of generic and patented drugs. While the Company is taking steps to mitigate the impact in the EU,
the austerity measures have negatively affected the Company’s revenue performance in 2011 and 2010 and the
Company anticipates the austerity measures will continue to negatively affect revenue performance in 2012.

Company continues to receive payment on these receivables, these conditions have resulted in an increase in the
average length of time it takes to collect accounts receivable outstanding thereby adversely affecting cash flows.

The full impact of U.S. health care reform, as well as continuing budget pressures on governments

around the world, cannot be predicted at this time.

In addressing cost containment pressures, the Company continues to attempt to demonstrate that its
medicines provide value to patients and to those who pay for health care. In markets with historically low rates of
government health care spending, the Company encourages those governments to increase their investments in
order to improve their citizens’ access to appropriate health care, including medicines.

Operating conditions have become more challenging under the global pressures of competition, industry
regulation and cost containment efforts. Although no one can predict the effect of these and other factors on the
Company’s business, the Company continually takes measures to evaluate, adapt and improve the organization and
its business practices to better meet customer needs and believes that it is well positioned to respond to the evolving
health care environment and market forces.

Government Regulation

The pharmaceutical industry is subject to regulation by regional, country, state and local agencies around
the world. Governmental regulation and legislation tend to focus on standards and processes for determining drug
safety and effectiveness, as well as conditions for sale or reimbursement, especially related to the pricing of
products.

Of particular importance is the FDA in the United States, which administers requirements covering the
testing, approval, safety, effectiveness, manufacturing, labeling, and marketing of prescription pharmaceuticals. In
many cases, the FDA requirements and practices have increased the amount of time and resources necessary to
develop new products and bring them to market in the United States.

The EU has adopted directives and other legislation concerning the classification, labeling, advertising,
wholesale distribution, integrity of the supply chain, enhanced pharmacovigilance monitoring and approval for
marketing of medicinal products for human use. These provide mandatory standards throughout the EU, which may
be supplemented or implemented with additional regulations by the EU member states. The Company’s policies and
procedures are already consistent with the substance of these directives; consequently, it is believed that they will
not have any material effect on the Company’s business.

The Company believes that it will continue to be able to conduct its operations, including launching new

drugs into the market, in this regulatory environment.

Access to Medicines

As a global health care company, Merck’s primary role is to discover and develop innovative medicines
and vaccines. The Company also recognizes that it has an important role to play in helping to improve access to its
products around the world. The Company’s efforts in this regard are wide-ranging. For example, the Company has
been recognized for pricing many of its products through a differential pricing framework, taking into consideration
such factors as a country’s level of economic development and public health need. In addition, the Merck Patient
Assistance Program provides medicines and adult vaccines for free to people who do not have prescription drug or
health insurance coverage and who, without the Company’s assistance, cannot afford their Merck medicine and
vaccines.

Building on the Company’s own efforts, Merck has undertaken collaborations with many stakeholders to

improve access to medicines and enhance the quality of life for people around the world.

For example, in 2011, Merck announced that it would launch “Merck for Mothers,” a long-term effort
with global health partners to create a world where no woman has to die from preventable complications of
pregnancy and childbirth. The launch includes a 10-year, $500 million initiative that applies Merck’s scientific and
business expertise to making proven solutions more widely available, developing new technologies and improving
public awareness, policy efforts and private sector engagement for maternal mortality.

partnerships is The African Comprehensive HIV/AIDS Partnership in Botswana, a collaboration with the
government of Botswana and the Bill & Melinda Gates Foundation, that was renewed in 2010 and supports
Botswana’s response to HIV/AIDS through a comprehensive and sustainable approach to HIV prevention, care,
treatment, and support.

Privacy and Data Protection

The Company is subject to a number of privacy and data protection laws and regulations globally. The
legislative and regulatory landscape for privacy and data protection continues to evolve. There has been increased
attention to privacy and data protection issues in both developed and emerging markets with the potential to affect
directly the Company’s business, including recently enacted laws and regulations in the United States, Europe, Asia
and Latin America and increased enforcement activity in the United States and other developed markets.

Distribution

The Company sells its human health pharmaceutical products primarily to drug wholesalers and retailers,
hospitals, government agencies and managed health care providers, such as health maintenance organizations,
pharmacy benefit managers and other institutions. Human health vaccines are sold primarily to physicians,
representatives
wholesalers, physician distributors and government entities. The Company’s professional
communicate the effectiveness, safety and value of the Company’s pharmaceutical and vaccine products to health
care professionals in private practice, group practices, hospitals and managed care organizations. The Company
sells
to veterinarians, distributors and animal producers. The Company’s
over-the-counter, foot care and sun care products are sold through wholesale and retail drug, food chain and mass
merchandiser outlets.

its animal health products

Raw Materials

Raw materials and supplies, which are generally available from multiple sources, are purchased

worldwide and are normally available in quantities adequate to meet the needs of the Company’s business.

Patents, Trademarks and Licenses

Patent protection is considered, in the aggregate, to be of material importance in the Company’s
marketing of its products in the United States and in most major foreign markets. Patents may cover products per
se, pharmaceutical formulations, processes for or intermediates useful in the manufacture of products or the uses of
products. Protection for individual products extends for varying periods in accordance with the legal life of patents
in the various countries. The protection afforded, which may also vary from country to country, depends upon the
type of patent and its scope of coverage.

The Food and Drug Administration Modernization Act (the “FDA Modernization Act”) includes a
Pediatric Exclusivity Provision that may provide an additional six months of market exclusivity in the United States
for indications of new or currently marketed drugs if certain agreed upon pediatric studies are completed by the
applicant. These exclusivity provisions were re-authorized by the Prescription Drug User Fee Act passed in
September 2007. Current U.S. patent law provides additional patent term under Patent Term Restoration for periods
when the patented product was under regulatory review by the FDA.

Patent portfolios developed for products introduced by the Company normally provide market
exclusivity. The Company has the following key U.S. patent protection (including Patent Term Restoration and
Pediatric Exclusivity) for major marketed products:

Product

Year of Expiration (in the U.S.)(1)

Maxalt(2)
Singulair
Cancidas
Propecia(3)
Asmanex
Avelox(4)
Dulera
Integrilin
Nasonex
Temodar(5)
Emend
Follistim AQ
PegIntron
Invanz
Zostavax
Zetia(6)/Vytorin
Zioptan(7)
NuvaRing
Noxafil
RotaTeq
Clarinex(8)
Comvax
Intron A
Recombivax
Saphris/Sycrest
Januvia/Janumet/Juvisync/Janumet XR
Isentress
Victrelis
Gardasil

2012
2012
2013 (compound)/2015 (composition)
2013 (formulation/use)
2014 (use)/2018 (formulation)
2014
2014 (use)/2020 (combination)
2014 (compound)/2015 (use/formulation)
2014 (use/formulation)/2018(formulation)
2014
2015
2015
2015 (conjugates)/2020 (Mature IFN-alpha)
2016 (compound)/2017 (composition)
2016 (use)
2017
2017
2018 (delivery system)
2019
2019
2020 (formulation)
2020 (method of making/vectors)
2020
2020 (method of making/vectors)
2020 (use/formulation) (with pending Patent Term Restoration)
2022 (compound)/2026 (salt)
2023
2024 (with pending Patent Term Restoration)
2026 (method of making/use/product by process)

(1) Compound patent unless otherwise noted.
(2) The Company has determined that it will not enforce an additional patent that was set to expire in 2014.
(3) By agreement, one generic manufacturer has been given the right to enter the market in January 2013 and another has been given the right to

enter in July 2013.

(4) By agreement, a generic manufacturer may launch a generic in the U.S. as early as February 2014. Six months Pediatric Exclusivity may extend

this date to August 2014.

(5) By agreement, a generic manufacturer may launch a generic in the U.S. in August 2013.
(6) By agreement, a generic manufacturer may launch a generic version of Zetia in the U.S. in December 2016.
(7) An application for Patent Term Restoration of the Zioptan compound patent will be filed within the prescribed time limits. The Company expects

five years of Patent Term Restoration.

(8) By virtue of litigation settlements, certain generic manufacturers have been given the right to enter the U.S. market in 2012.

While the expiration of a product patent normally results in a loss of market exclusivity for the covered
pharmaceutical product, commercial benefits may continue to be derived from: (i) later-granted patents on
processes and intermediates related to the most economical method of manufacture of the active ingredient of such
product; (ii) patents relating to the use of such product; (iii) patents relating to novel compositions and formulations;
and (iv) in the United States and certain other countries, market exclusivity that may be available under relevant
law. The effect of product patent expiration on pharmaceutical products also depends upon many other factors such
as the nature of the market and the position of the product in it, the growth of the market, the complexities and
economics of the process for manufacture of the active ingredient of the product and the requirements of new drug
provisions of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in other countries.

The patent that provides U.S. market exclusivity for Singulair, the Company’s largest selling product,
expires in August 2012. The Company expects that within the two years following patent expiration, it will lose
substantially all U.S. sales of Singulair, with most of those declines coming in the first full year following patent
expiration. Also, the patent that provides market exclusivity for Singulair will expire in a number of major
European markets in February 2013 and the Company expects sales of Singulair in those markets will decline
significantly thereafter. The patent that provides market exclusivity for Singulair in Japan will expire in 2016. In
addition, the patent that provides U.S. market exclusivity for Maxalt will expire in December 2012. Also, the patent
that provides market exclusivity for Maxalt will expire in a number of major European markets in February 2013.
The Company anticipates that sales in the United States and in these European markets will decline significantly
after these patent expiries.

Additions to market exclusivity are sought in the United States and other countries through all relevant
laws, including laws increasing patent life. Some of the benefits of increases in patent life have been partially offset
by a general increase in the number of incentives for and use of generic products. Additionally, improvements in
intellectual property laws are sought in the United States and other countries through reform of patent and other
relevant laws and implementation of international treaties.

The Company has the following key U.S. patent protection for drug candidates under review:

Under Review

MK-0653C (ezetimibe/atorvastatin)
MK-8669 (ridaforolimus)

Currently Anticipated
Year of Expiration (in the U.S.)(1)(2)(3)(4)

2017
2023

The Company also has the following key U.S. patent protection for drug candidates in Phase III

development:

Phase III Drug Candidate

MK-7243 (grass pollen)
MK-3641 (ragweed)
MK-0524A (extended-release niacin/laropiprant)
MK-0524B (extended-release niacin/laropiprant/simvastatin)
MK-0859 (anacetrapib)
MK-6621 (vernakalant i.v.)
MK-3415A (Clostridium difficile infection)
MK-8175A (NOMAC/E2)
MK-0431E (sitagliptin/atorvastatin)
MK-8962 (corifollitropin alfa for injection)
MK-7009 (vaniprevir)
V212 (inactivated varicella zoster virus (“VZV”) vaccine)
V503 (HPV vaccine (9 valent))
MK-4305 (suvorexant)
MK-8616 (Bridion)
MK-0822 (odanacatib)
MK-3814 (preladenant)
V419 (pediatric hexavalent combination vaccine)
MK-5348 (vorapaxar)

Currently Anticipated
Year of Expiration (in the U.S.)(1)(2)(3)(4)

N/A(5)
N/A(5)
2023
2023
2027
2020
2026
2017 (use)
2022 (compound)/2026 (salt)
2018 (formulation)
2027
2016 (method of use)
2024 (compound)/2026 (method of making/use)
2029
2021
2024
2021
2020 (method of making/vectors)
2024

(1) Compound patent unless otherwise noted.
(2) Subject to any future patent term restoration of up to five years and six month pediatric market exclusivity, either or both of which may be

available.

(3) Depending on the circumstances surrounding any final regulatory approval of the compound, there may be other listed patents or patent
applications pending that could have relevance to the product as finally approved; the relevance of any such application would depend upon the
claims that ultimately may be granted and the nature of the final regulatory approval of the product.

(4) Regulatory exclusivity tied to the protection of clinical data is complementary to patent protection and, in many cases, may provide more
efficacious or longer lasting marketing exclusivity than a compound’s patent estate. In the United States, the data protection generally runs
5 years from first marketing approval of a new chemical entity, extended to 7 years for an orphan drug indication and 12 years from first
marketing approval of a biological product.

(5) Twelve years of data exclusivity from first marketing approval is expected.

For further information with respect to the Company’s patents, see Item 1A. “Risk Factors” and Item 8.

“Financial Statements and Supplementary Data,” Note 12. “Contingencies and Environmental Liabilities” below.

Worldwide, all of the Company’s important products are sold under trademarks that are considered in the
aggregate to be of material importance. Trademark protection continues in some countries as long as used; in other
countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely.

Royalty income in 2011 on patent and know-how licenses and other rights amounted to $367 million.
Merck also incurred royalty expenses amounting to $1.3 billion in 2011 under patent and know-how licenses it
holds.

Research and Development

The Company’s business is characterized by the introduction of new products or new uses for existing
products through a strong research and development program. Approximately 14,100 people are employed in the
Company’s research activities. Research and development expenses were $8.5 billion in 2011, $11.1 billion in
2010, and $5.8 billion in 2009 (which included restructuring costs in all years, as well as $587 million and
$2.4 billion of in-process research and development impairment charges in 2011 and 2010, respectively). The
Company maintains its ongoing commitment to research over a broad range of therapeutic areas and clinical
development in support of new products.

The Company maintains a number of long-term exploratory and fundamental research programs in
biology and chemistry as well as research programs directed toward product development. The Company’s research
and development model is designed to increase productivity and improve the probability of success by prioritizing
the Company’s research and development resources on disease areas of unmet medical needs, scientific opportunity
and commercial opportunity. Merck is managing its research and development portfolio across diverse approaches
to discovery and development by balancing investments appropriately on novel, innovative targets with the
potential to have a major impact on human health, on developing best-in-class approaches, and on delivering
maximum value of its approved medicines and vaccines through new indications and new formulations. Another
important component of the Company’s science-based diversification is based on expanding the Company’s
portfolio of modalities to include not only small molecules and vaccines, but also biologics (peptides, small
proteins, antibodies) and RNAi. Further, Merck has moved to diversify its portfolio through its Merck BioVentures
division, which has the potential to harness the market opportunity presented by biological medicine patent expiries
by delivering high quality follow-on biologic products to enhance access for patients worldwide. The Company
supplements its internal research with a licensing and external alliance strategy focused on the entire spectrum of
collaborations from early research to late-stage compounds, as well as new technologies.

The Company’s clinical pipeline includes candidates in multiple disease areas, including atherosclerosis,
insomnia,

cancer, cardiovascular diseases, diabetes,
neurodegenerative diseases, ophthalmics, osteoporosis, respiratory diseases and women’s health.

inflammatory/autoimmune diseases,

infectious diseases,

In the development of human health products, industry practice and government regulations in the United
States and most foreign countries provide for the determination of effectiveness and safety of new chemical
compounds through preclinical tests and controlled clinical evaluation. Before a new drug or vaccine may be
marketed in the United States, recorded data on preclinical and clinical experience are included in the NDA for a
drug or the Biologics License Application (“BLA”) for a vaccine or biologic submitted to the FDA for the required
approval.

Once the Company’s scientists discover a new small molecule compound or biologics molecule that they
believe has promise to treat a medical condition, the Company commences preclinical testing with that compound.
Preclinical testing includes laboratory testing and animal safety studies to gather data on chemistry, pharmacology,
immunogenicity and toxicology. Pending acceptable preclinical data, the Company will initiate clinical testing in
accordance with established regulatory requirements. The clinical testing begins with Phase I studies, which are
tolerability, pharmacokinetics, and preliminary pharmacodynamic activity of the
designed to assess safety,
compound in humans. If favorable, additional, larger Phase II studies are initiated to determine the efficacy of the
compound in the affected population, define appropriate dosing for the compound, as well as identify any adverse

effects that could limit the compound’s usefulness. If data from the Phase II trials are satisfactory, the Company
commences large-scale Phase III trials to confirm the compound’s efficacy and safety. Upon completion of those
trials, if satisfactory, the Company submits regulatory filings with the appropriate regulatory agencies around the
world to have the product candidate approved for marketing. There can be no assurance that a compound that is the
result of any particular program will obtain the regulatory approvals necessary for it to be marketed.

Vaccine development follows the same general pathway as for drugs. Preclinical testing focuses on the
vaccine’s safety and ability to elicit a protective immune response (immunogenicity). Pre-marketing vaccine clinical
trials are typically done in three phases. Initial Phase I clinical studies are conducted in normal subjects to evaluate
the safety, tolerability and immunogenicity of the vaccine candidate. Phase II studies are dose-ranging studies.
Finally, Phase III trials provide the necessary data on effectiveness and safety. If successful, the Company submits
regulatory filings with the appropriate regulatory agencies. Also during this stage, the proposed manufacturing
facility undergoes a pre-approval inspection during which production of the vaccine as it is in progress is examined
in detail.

In the United States, the FDA review process begins once a complete NDA is submitted and received by
the FDA. Pursuant to the Prescription Drug User Fee Act, the FDA review period targets for NDAs or supplemental
NDAs is either six months, for priority review, or ten months, for a standard review. Within 60 days after receipt of
an NDA, the FDA determines if the application is sufficiently complete to permit a substantive review. The FDA
also assesses, at that time, whether the application will be granted a priority review or standard review. Once the
review timelines are defined, the FDA will generally act upon the application within those timelines, unless a major
amendment has been submitted (either at the Company’s own initiative or the FDA’s request) to the pending
application. If this occurs, the FDA may extend the review period to allow for review of the new information, but
by no more than three months. Extensions to the review period are communicated to the Company. The FDA can
act on an application either by issuing an approval letter, or by issuing a Complete Response Letter stating that the
application will not be approved in its present form and describing all deficiencies that the FDA has identified.
Should the Company wish to pursue an application after receiving a Complete Response Letter, it can resubmit the
application with information that addresses the questions or issues identified by the FDA in order to support
approval. Resubmissions are subject to review period targets, which vary depending on the underlying submission
type and the content of the resubmission.

Research and Development Update

The Company currently has two candidates under regulatory review in the United States and

internationally.

MK-8669, ridaforolimus, is an investigational oral mTOR (mammalian target of rapamycin) inhibitor
under development for the treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable
response to chemotherapy that was accepted for standard review by the FDA in September 2011. In August 2011,
the European Medicines Agency (“EMA”) accepted the marketing authorization application for ridaforolimus. As
part of an exclusive license agreement with ARIAD Pharmaceuticals, Inc. (“ARIAD”), Merck is responsible for the
ridaforolimus. ARIAD has an option to co-promote
development and worldwide commercialization of
ridaforolimus for sarcoma in the United States subject to execution of a co-promotion agreement.

MK-0653C, Zetia combined with atorvastatin was accepted for standard review by the FDA for the
treatment of primary or mixed hyperlipidemia. In response to notice of the Company’s filing, Pfizer Inc. (“Pfizer”)
filed a patent infringement lawsuit in U.S. District Court against the Company asserting certain Pfizer patent rights
in respect of atorvastatin. This lawsuit has the potential to bar FDA approval of the Company’s NDA for up to 30
months (until January 6, 2014) subject to being shortened or lengthened by a court decision, or shortened by an
agreement between the parties.

In addition to the candidates under regulatory review, the Company has 19 drug candidates in Phase III
development targeting a broad range of diseases. The Company plans to file five major products for approval
between 2012 and 2013, including: suvorexant (insomnia), Bridion (reversal of neuromuscular blockade), V503
(cervical cancer vaccine), odanacatib (osteoporosis) and Tredaptive (atherosclerosis).

neurons in the hypothalamus region of the brain and are believed to be an important regulator of the brain’s sleep-
wake process. In February 2012, Merck announced that based on the positive results of two pivotal Phase III
efficacy trials for suvorexant, the Company anticipates filing an NDA for MK-4305 with the FDA in 2012.

MK-8616, Bridion, is a medication for the reversal of certain muscle relaxants used during surgery.
Bridion is currently approved and has been launched in many countries outside of the United States. Prior to the
Merger, Schering-Plough received a Not-Approvable Letter from the FDA for Bridion. The Company has
conducted additional clinical trials to address the FDA’s comments and plans to file an NDA for Bridion with the
FDA in 2012.

V503 is a nine-valent HPV vaccine in development to help protect against certain HPV-related diseases.
V503 incorporates antigens against five additional cancer-causing HPV types as compared with Gardasil. The
Phase III clinical program, which includes an event-driven clinical trial, is ongoing and Merck continues to
anticipate filing a BLA for V503 with the FDA in 2012.

MK-0822, odanacatib,

is an oral, once-weekly investigational

treatment for osteoporosis in post-
menopausal women. Osteoporosis is a disease that reduces bone density and strength and results in an increased risk
of bone fractures. Odanacatib is a cathepsin K inhibitor that selectively inhibits the cathepsin K enzyme. Cathepsin
K is known to play a central role in the function of osteoclasts, which are cells that break down existing bone tissue,
particularly the protein components of bone. Inhibition of cathepsin K is a novel approach to the treatment of
osteoporosis. Odanacatib continues to be studied to determine its safety and potential effects on hip, vertebral and
non-vertebral fractures in an event-driven Phase III clinical trial. The Company anticipates filing an NDA for
MK-0822 with the FDA in 2013.

MK-0524A is a drug candidate that combines extended-release niacin and a novel flushing inhibitor,
laropiprant. MK-0524A has demonstrated the ability to lower LDL-cholesterol (“LDL-C” or “bad” cholesterol),
raise HDL-cholesterol (“HDL-C” or “good” cholesterol) and lower triglycerides with significantly less flushing
than traditional extended-release niacin alone. High LDL-C, low HDL-C and elevated triglycerides are risk factors
associated with heart attacks and strokes. In April 2008, Merck received a Not-Approvable Letter from the FDA in
response to its NDA for MK-0524A. At a meeting to discuss the letter, the FDA stated that additional efficacy and
safety data were required and suggested that Merck wait for the results of the HPS2-THRIVE (Treatment of HDL to
Reduce the Incidence of Vascular Events) event-driven cardiovascular outcomes study, which is expected to be
completed in 2012. The Company anticipates filing an NDA with the FDA for MK-0524A in 2013. MK-0524A has
been approved in more than 60 countries outside the United States for the treatment of dyslipidemia, particularly in
patients with combined mixed dyslipidemia (characterized by elevated levels of LDL-C and triglycerides and low
HDL-C) and in patients with primary hypercholesterolemia (heterozygous familial and non-familial) and is
marketed as Tredaptive (or as Cordaptive in certain countries). Tredaptive should be used in patients in combination
with statins when the cholesterol lowering effects of statin monotherapy is inadequate. Tredaptive can be used as
monotherapy only in patients in whom statins are considered inappropriate or not tolerated.

MK-8962, Elonva, corifollitropin alpha injection, which has been approved in the EU for controlled
ovarian stimulation in combination with a GnRH antagonist for the development of multiple follicles in women
participating in an assisted reproductive technology program, is currently in Phase III development in the United
States. Based on feedback from the FDA, additional data from an ongoing Phase III trial will be required at the time
of filing. Merck now anticipates filing an NDA for Elonva with the FDA in 2013.

MK-6621, vernakalant i.v., is an investigational candidate for the treatment of atrial fibrillation which is
being marketed as Brinavess in the EU. Merck acquired exclusive rights to develop and commercialize vernakalant
i.v., as well as exclusive worldwide rights to oral formulations of vernakalant. Prior to Merck’s acquisition of the
rights to vernakalant i.v. in Canada, Mexico and the United States, the program was placed on clinical hold by the
FDA and the Phase III, ACT V trial was suspended in 2010. ACT V has now been terminated. In the United States,
the program remains on hold. The Company plans to have further discussions with the FDA.

estradiol, an estrogen that is similar to the one naturally present in a women’s body. In November 2011, Merck
received a Complete Response Letter from the FDA for NOMAC/E2. The Company is planning to conduct an
additional clinical study requested by the FDA and update the application in the future.

MK-5348, vorapaxar,

is a thrombin receptor antagonist being developed for the prevention of
thrombosis, or clot formation, and the reduction of cardiovascular events. Vorapaxar has been evaluated in two
major clinical outcomes studies in different patient groups: TRACER (Thrombin Receptor Antagonist for Clinical
Event Reduction in Acute Coronary Syndrome), a clinical outcomes trial in patients with acute coronary syndrome,
and TRA-2P (Thrombin Receptor Antagonist in Secondary Prevention of atherothrombotic ischemic events), a
secondary prevention study in patients with a previous heart attack or ischemic stroke, or with documented
peripheral vascular disease. In February 2012, Merck announced the top-line results of the TRA-2P study. TRA-2P
showed that the addition of vorapaxar to standard of care significantly reduced the risk of the protocol-specified
primary endpoint of the composite of cardiovascular death, heart attack (myocardial infarction), stroke or urgent
coronary revascularization compared to standard of care. There was a significant increase in bleeding, including
intracranial hemorrhage, among patients taking vorapaxar in addition to standard of care, although there was a
lower risk of intracranial hemorrhage in patients without a history of stroke. The full results of TRA-2P will be
presented at
the American College of Cardiology Scientific Sessions in March 2012. In November 2011,
researchers presented results from the TRACER outcomes study at the American Heart Association Scientific
Sessions, and the results have been published. TRACER did not achieve its primary endpoint. In January 2011,
Merck and the external study investigators announced that the combined Data and Safety Monitoring Board
(“DSMB”) for the two clinical trials had reviewed the available safety and efficacy data and recommended that
patients in the TRACER trial discontinue study drug and investigators close out the study. Merck will review the
data from both TRA-2P and TRACER with the investigators and other outside experts to help better understand the
profile of this investigational medicine in specific patient populations and to determine next steps, including
potential regulatory filings.

MK-0524B is a drug candidate that combines the novel approach to raising HDL-C and lowering
triglycerides from extended-release niacin combined with laropiprant with the proven benefits of simvastatin in one
combination product. Merck anticipates filing an NDA for MK-0524B with the FDA in 2014.

MK-7243 is an investigational allergy immunotherapy sublingual

in Phase III
development for grass pollen allergy for which the Company has North American rights. AIT is a dissolvable oral
tablet that is designed to prevent allergy symptoms by inducing a protective immune response against allergies,
thereby treating the underlying cause of the disease. Merck is investigating AIT for the treatment of grass pollen
allergic rhinoconjunctivitis in both children and adults. The Company anticipates filing an NDA for MK-7243 with
the FDA in 2013.

(“AIT”)

tablet

MK-3641, an AIT for ragweed allergy, is also in Phase III development for the North American market.

The Company anticipates filing an NDA for MK-3641 with the FDA in 2013.

MK-3814, preladenant, is a selective adenosine 2a receptor antagonist in Phase III development for

treatment of Parkinson’s disease. The Company anticipates filing an NDA for preladenant with the FDA in 2014.

MK-3415A, an investigational candidate for the treatment of Clostridium difficile infection,

is a
combination of two monoclonal antibodies used to treat patients with a single infusion. The Company anticipates
filing an NDA for MK-3415A with the FDA in 2014.

V212 is an inactivated varicella-zoster virus vaccine in development for the prevention of herpes zoster.
The Company is enrolling two Phase III trials, one in autologous hematopoietic cell transplant patients and the other
in patients with solid tumor malignancies undergoing chemotherapy and hematological malignancies. The Company
anticipates filing a BLA first with the autologous hematopoietic cell transplant data in 2014 and filing for the
second indication in cancer patients at a later date.

V419 is an investigational hexavalent pediatric combination vaccine, which contains components of
current vaccines, designed to help protect against six potentially serious diseases: diphtheria, tetanus, whooping
cough (Bordetella pertussis), polio (poliovirus types 1, 2, and 3), invasive disease caused by Haemophilus
influenzae type b, and hepatitis B that is being developed in collaboration with Sanofi-Pasteur. The Company
anticipates filing a BLA for V419 with the FDA in 2014.

MK-0431E combines Januvia and atorvastatin in a single tablet and is being developed for the treatment

of diabetes and atherosclerosis. The Company anticipates filing an NDA for MK-0431E with the FDA in 2014.

MK-7009, vaniprevir, is an investigational, oral twice daily protease inhibitor for the treatment of chronic
hepatitis C virus. The drug is in Phase III trials in Japan. The Company anticipates filing a new drug application for
MK-7009 in Japan in 2014.

MK-0859, anacetrapib, is an investigational inhibitor of the cholesteryl ester transfer protein (“CETP”)
that is being investigated in lipid management to raise HDL-C and reduce LDL-C. Based on the results from the
Phase III DEFINE (Determining the EFficacy and Tolerability of CETP INhibition with AnacEtrapib) safety study
of 1,623 patients with coronary heart disease or coronary heart disease risk equivalents, the Company initiated a
large, event-driven cardiovascular clinical outcomes trial REVEAL (Randomized EValuation of the Effects of
Anacetrapib Through Lipid-modification) involving patients with preexisting vascular disease. The Company
continues to anticipate filing an NDA for anacetrapib with the FDA beyond 2015.

In 2011, Merck discontinued the clinical development program for telcagepant,

the Company’s
investigational calcitonin gene-related peptide receptor antagonist for the treatment of acute migraine. The decision
was based on an assessment of data across the clinical program. The Company also discontinued the clinical
development program for MK-0431C, a combination of sitagliptin and pioglitazone, for the treatment of diabetes
based on a review of the regulatory and commercial prospects for the combination drug candidate.

In 2012, Merck discontinued the clinical development program in the EU for MK-0887A, Zenhale, a
fixed dose combination of two previously approved drugs for the treatment of asthma: mometasone furoate and
formoterol fumarate dehydrate, which is marketed in the United States as Dulera Inhalation Aerosol.

The chart below reflects the Company’s research pipeline as of February 21, 2012. Candidates shown in
Phase III include specific products and the date such candidate entered into Phase III development. Candidates shown
in Phase II include the most advanced compound with a specific mechanism or, if listed compounds have the same
mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and
biologics are given MK-number designations and vaccine candidates are given V-number designations. Candidates in
Phase I, additional indications in the same therapeutic area and additional claims, line extensions or formulations for
in-line products are not shown.

Phase II

Phase III (Phase III entry date)

Under Review

Atherosclerosis

MK-0653C (ezetimibe/atorvastatin) (U.S.)

Sarcoma

MK-8669 (ridaforolimus) (U.S.) (EU)

Allergy

MK-8237, Immunotherapy(1)

Cancer

MK-7243, Grass pollen(1) (March 2008)
MK-3641, Ragweed(1) (September 2009)

MK-0646 (dalotuzumab)
MK-1775
MK-2206
MK-7965 (dinaciclib)

Contraception, Medicated IUS

MK-8342

Diabetes Mellitus

MK-3102
Hepatitis C
MK-5172

Insomnia

MK-3697
MK-6096

Overactive Bladder

MK-4618

Atherosclerosis

MK-0524A (extended-release niacin/laropiprant) (U.S.)

(December 2005)

MK-0524B (extended-release niacin/laropiprant/

simvastatin) (July 2007)

MK-0859 (anacetrapib) (May 2008)

Atrial Fibrillation

MK-6621 (vernakalant i.v.) (U.S.) (August 2003)(2)

Clostridium difficile Infection

MK-3415A (November 2011)

Contraception

MK-8175A (NOMAC/E2)(4) (U.S.) (June 2006)

Diabetes and Atherosclerosis

MK-0431E (sitagliptin/atorvastatin) (October 2011)

Fertility

Pneumoconjugate Vaccine

MK-8962 (corifollitropin alfa for injection) (U.S.)

V114
Psoriasis

MK-3222

(July 2006)

Hepatitis C

MK-7009 (vaniprevir)(3) (June 2011)

Herpes Zoster

V212 (inactivated VZV vaccine) (December 2010)

Footnotes:

HPV-Related Cancers

V503 (HPV vaccine (9 valent)) (September 2008)

Insomnia

MK-4305 (suvorexant) (December 2009)

Neuromuscular Blockade Reversal

MK-8616 (Bridion) (U.S.) (November 2005)

Osteoporosis

MK-0822 (odanacatib) (September 2007)

Parkinson’s Disease

MK-3814 (preladenant) (July 2010)

Pediatric Hexavalent Combination Vaccine

V419 (April 2011)

Thrombosis

MK-5348 (vorapaxar) (September 2007)

(1) North American rights only.
(2) Prior to Merck’s acquisition of rights to

vernakalant i.v. in Canada, Mexico and the
United States, the program was placed on
clinical hold by the FDA in 2010. The
suspended Phase III trial, ACT V has now
been terminated. The program remains on
hold in the United States. The Company
plans to have further discussions with the
FDA.

(3) For development in Japan only.
(4) In November 2011, Merck received a

Complete Response Letter from the FDA for
NOMAC/E2 (MK-8175A). The Company is
planning to conduct an additional clinical
study requested by the FDA and update the
application in the future.

Employees

As of December 31, 2011,

the Company had approximately 86,000 employees worldwide, with
approximately 33,100 employed in the United States, including Puerto Rico. Approximately 31% of worldwide
employees of the Company are represented by various collective bargaining groups.

In February 2010,

the Company commenced actions under the Merger Restructuring Program in
conjunction with the integration of the legacy Merck and legacy Schering-Plough businesses. This Merger
Restructuring Program is intended to optimize the cost structure of the combined company. Additional actions under
the program continued during 2010. In July 2011,
the Company announced the latest phase of the Merger
Restructuring Program during which the Company expects to reduce its workforce measured at the time of the

Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions in
this phase of the Merger Restructuring Program relate to manufacturing (including Animal Health), administrative
and headquarters organizations. Previously announced workforce reductions of approximately 17% in earlier phases
of the program primarily reflect the elimination of positions in sales, administrative and headquarters organizations,
as well as from the sale or closure of certain manufacturing and research and development sites and the
consolidation of office facilities. Since inception of the Merger Restructuring Program through December 31, 2011,
Merck has eliminated approximately 18,430 positions comprised of employee separations, as well as the elimination
of contractors and more than 2,500 positions that were vacant at the time of the Merger.

Prior to the Merger, Schering-Plough commenced a Productivity Transformation Program, which was
designed to reduce and avoid costs and increase productivity. The position eliminations associated with this
program are largely complete.

Environmental Matters

The Company believes that there are no compliance issues associated with applicable environmental laws
and regulations that would have a material adverse effect on the Company. The Company is also remediating
environmental contamination resulting from past industrial activity at certain of its sites. Expenditures for remediation
and environmental liabilities were $25 million in 2011, $16 million in 2010 and $17 million in 2009, and are estimated
at $93 million in the aggregate for the years 2012 through 2016. These amounts do not consider potential recoveries
from other parties. The Company has taken an active role in identifying and providing for these costs and, in
management’s opinion, the liabilities for all environmental matters, which are probable and reasonably estimable, have
been accrued and totaled $171 million at December 31, 2011. Although it is not possible to predict with certainty the
outcome of these environmental matters, or the ultimate costs of remediation, management does not believe that any
reasonably possible expenditures that may be incurred in excess of the liabilities accrued should exceed $133 million
in the aggregate. Management also does not believe that these expenditures should have a material adverse effect on
the Company’s financial position, results of operations, liquidity or capital resources for any year.

Merck believes that climate change could present risks to its business. Some of the potential impacts of
climate change to its business include increased operating costs due to additional regulatory requirements, physical
risks to the Company’s facilities, water limitations and disruptions to its supply chain. These potential risks are
integrated into the Company’s business planning including investment
in reducing energy, water use and
greenhouse gas emissions. The Company does not believe these risks are material to its business at this time.

Geographic Area Information

The Company’s operations outside the United States are conducted primarily through subsidiaries. Sales
worldwide by subsidiaries outside the United States were 57% of sales in 2011, 56% of sales in 2010 and 47% of
sales in 2009. The increase in proportion of sales outside the United States in 2010 was primarily due to the
inclusion of results of Schering-Plough following the close of the Merger.

The Company’s worldwide business is subject to risks of currency fluctuations, governmental actions
and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further
expansion of its operations abroad. However, the Company closely reviews its methods of operations and adopts
strategies responsive to changing economic and political conditions.

Merck has expanded its operations in countries located in Latin America, the Middle East, Africa,
Eastern Europe and Asia Pacific. Business in these developing areas, while sometimes less stable, offers important
opportunities for growth over time.

Financial information about geographic areas of the Company’s business is discussed in Item 8.

“Financial Statements and Supplementary Data” below.

Available Information

The Company’s Internet website address is www.merck.com. The Company will make available, free of
charge at the “Investors” portion of its website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

The Company’s corporate governance guidelines and the charters of the Board of Directors’ six standing
committees are available on the Company’s website at www.merck.com/about/leadership and all such information
is available in print to any stockholder who requests it from the Company.

Item 1A. Risk Factors.

Investors should carefully consider all of the information set forth in this Form 10-K, including the
following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only
ones the Company faces. Additional risks not currently known to the Company or that the Company presently
deems immaterial may also impair its business operations. The Company’s business, financial condition, results of
operations or prospects could be materially adversely affected by any of these risks. This Form 10-K also contains
forward-looking statements that involve risks and uncertainties. The Company’s results could materially differ from
those anticipated in these forward-looking statements as a result of certain factors, including the risks it faces
described below and elsewhere. See “Cautionary Factors that May Affect Future Results” below.

Certain of the Company’s major products are going to lose patent protection in the near future,
including Singulair in 2012, and, when that occurs, the Company expects a significant decline in sales of those
products.

The Company depends upon patents to provide it with exclusive marketing rights for its products for
some period of time. As product patents for several of the Company’s products have recently expired in the United
States and in other countries, the Company faces strong competition from lower priced generic drugs. Loss of patent
protection for one of the Company’s products typically leads to a rapid loss of sales for that product, as lower priced
generic versions of that drug become available. In the case of products that contribute significantly to the
Company’s sales, the loss of patent protection can have a material adverse effect on the Company’s business, cash
flow, results of operations, financial position and prospects. The patent that provides U.S. market exclusivity for
Singulair, which is the Company’s largest selling product with U.S. sales of approximately $3.5 billion in 2011,
expires in August 2012. The Company expects that within the two years following patent expiration, it will lose
substantially all U.S. sales of Singulair, with most of those declines coming in the first full year following patent
expiration. Also, the patent that provides market exclusivity for Singulair will expire in a number of major
European markets in February 2013 and the Company expects sales of Singulair in those markets will decline
significantly thereafter. In addition, the patent that provides U.S. market exclusivity for Maxalt will expire in
December 2012. Also, the patent that provides market exclusivity for Maxalt will expire in a number of major
European markets in February 2013. The Company anticipates that sales in the United States, which were
approximately $450 million in 2011, and in these European markets will decline significantly after these patent
expiries. In addition, as previously disclosed, in 2012, AstraZeneca has the right to exercise its option to acquire the
Company’s interest in a subsidiary and, through it, the Company’s interest in Nexium and Prilosec and the
Company believes that it is likely that AstraZeneca will exercise its option.

A chart listing the U.S. patent protection for the Company’s major marketed products is set forth above

in Item 1. “Business — Patents, Trademarks and Licenses.”

The Company is dependent on its patent rights, and if its patent rights are invalidated or

circumvented, its business would be adversely affected.

Patent protection is considered, in the aggregate, to be of material importance in the Company’s
marketing of human health products in the United States and in most major foreign markets. Patents covering

products that it has introduced normally provide market exclusivity, which is important for the successful marketing
and sale of its products. The Company seeks patents covering each of its products in each of the markets where it
intends to sell the products and where meaningful patent protection is available.

Even if the Company succeeds in obtaining patents covering its products, third parties or government
authorities may challenge or seek to invalidate or circumvent its patents and patent applications. It is important for
the Company’s business to defend successfully the patent rights that provide market exclusivity for its products.
The Company is often involved in patent disputes relating to challenges to its patents or infringement and similar
claims against the Company. The Company aggressively defends its important patents both within and outside the
United States, including by filing claims of infringement against other parties. See Item 8. “Financial Statements
In particular,
and Supplementary Data,” Note 12. “Contingencies and Environmental Liabilities” below.
manufacturers of generic pharmaceutical products from time to time file Abbreviated New Drug Applications with
the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents
owned by the Company. The Company normally responds by vigorously defending its patent, including by filing
lawsuits alleging patent infringement. A trial relating to the Company’s U.S. patent for Nasonex is expected to take
place in 2012. Patent litigation and other challenges to the Company’s patents are costly and unpredictable and may
deprive the Company of market exclusivity for a patented product or, in some cases, third party patents may prevent
the Company from marketing and selling a product in a particular geographic area.

Additionally, certain foreign governments have indicated that compulsory licenses to patents may be
granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions
and negatively affect the Company’s results of operations. Further, recent court decisions relating to other
companies’ U.S. patents, potential U.S. legislation relating to patent reform, as well as regulatory initiatives may
result in further erosion of intellectual property protection.

If one or more important products lose patent protection in profitable markets, sales of those products are
likely to decline significantly as a result of generic versions of those products becoming available and, in the case of
certain products, such a loss could result in a material non-cash impairment charge. The Company’s results of
operations may be adversely affected by the lost sales unless and until the Company has successfully launched
commercially successful replacement products.

Key Company products generate a significant amount of the Company’s profits and cash flows,
and any events that adversely affect the markets for its leading products could have a material and negative
impact on results of operations and cash flows.

The Company’s ability to generate profits and operating cash flow depends largely upon the continued
profitability of the Company’s key products, such as Singulair, Januvia, Remicade, Zetia, Vytorin, Janumet,
Isentress, Nasonex, Gardasil, and Temodar. As a result of the Company’s dependence on key products, any event
that adversely affects any of these products or the markets for any of these products could have a significant impact
on results of operations and cash flows. These events could include loss of patent protection, increased costs
associated with manufacturing, generic or over-the-counter availability of the Company’s product or a competitive
product, the discovery of previously unknown side effects, increased competition from the introduction of new,
more effective treatments and discontinuation or removal from the market of the product for any reason. If any of
these events had a material adverse effect on the sales of certain products, such an event could result in a material
non-cash impairment charge.

The Company’s research and development efforts may not succeed in developing commercially
successful products and the Company may not be able to acquire commercially successful products in other
ways; in consequence, the Company may not be able to replace sales of successful products that have lost
patent protection.

Like other major pharmaceutical companies, in order to remain competitive, the Company must continue
to launch new products each year. Expected declines in sales of products, such as Singulair and Maxalt, after the
loss of market exclusivity mean that the Company’s future success is dependent on its pipeline of new products,
including new products which it may develop through joint ventures and products which it is able to obtain through

license or acquisition. To accomplish this, the Company commits substantial effort, funds and other resources to
research and development, both through its own dedicated resources and through various collaborations with third
parties. There is a high rate of failure inherent in the research to develop new drugs to treat diseases. As a result,
there is a high risk that funds invested by the Company in research programs will not generate financial returns.
This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical
compound from the discovery phase to market may take a decade or more and failure can occur at any point in the
process, including later in the process after significant funds have been invested.

For a description of the research and development process, see Item 1. “Business — Research and
Development” above. Each phase of testing is highly regulated and during each phase there is a substantial risk that
the Company will encounter serious obstacles or will not achieve its goals, therefore, the Company may abandon a
product in which it has invested substantial amounts of time and resources. Some of the risks encountered in the
research and development process include the following: pre-clinical testing of a new compound may yield
disappointing results; clinical trials of a new drug may not be successful; a new drug may not be effective or may
have harmful side effects; a new drug may not be approved by the FDA for its intended use; it may not be possible
to obtain a patent for a new drug; or sales of a new product may be disappointing.

The Company cannot state with certainty when or whether any of its products now under development
will be approved or launched; whether it will be able to develop, license or otherwise acquire compounds, product
candidates or products; or whether any products, once launched, will be commercially successful. The Company
must maintain a continuous flow of successful new products and successful new indications or brand extensions for
existing products sufficient both to cover its substantial research and development costs and to replace sales that are
lost as profitable products, such as Singular and Maxalt in 2012, lose patent protection or are displaced by
competing products or therapies. Failure to do so in the short term or long term would have a material adverse effect
on the Company’s business, results of operations, cash flow, financial position and prospects.

The Company’s success is dependent on the successful development and marketing of new

products, which are subject to substantial risks.

Products that appear promising in development may fail to reach market for numerous reasons, including

the following:

•

findings of ineffectiveness, superior safety or efficacy of competing products, or harmful side effects
in clinical or pre-clinical testing;

failure to receive the necessary regulatory approvals, including delays in the approval of new products
and new indications, and increasing uncertainties about
the time required to obtain regulatory
approvals and the benefit/risk standards applied by regulatory agencies in determining whether to
grant approvals;

•

lack of economic feasibility due to manufacturing costs or other factors; and

• preclusion from commercialization by the proprietary rights of others.

In the future, if certain pipeline programs are cancelled or if the Company believes that their commercial
prospects have been reduced, the Company may recognize material non-cash impairment charges for those programs
that were measured at fair value and capitalized in connection with the Merger. These non-cash impairment charges,
which the Company anticipates would be excluded from the Company’s non-GAAP earnings, could be material to the
Company’s future GAAP earnings. For example,
the Company recognized a non-cash impairment charge of
$1.7 billion in 2010 with respect to vorapaxar, which is a legacy Schering-Plough pipeline program.

The Company’s products, including products in development, can not be marketed unless the

Company obtains and maintains regulatory approval.

The Company’s activities, including research, preclinical testing, clinical trials and manufacturing and
marketing its products, are subject to extensive regulation by numerous federal, state and local governmental
authorities in the United States, including the FDA, and by foreign regulatory authorities, including in the EU. In
the United States, the FDA is of particular importance to the Company, as it administers requirements covering the
testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In

many cases, the FDA requirements have increased the amount of time and money necessary to develop new
products and bring them to market in the United States. Regulation outside the United States also is primarily
focused on drug safety and effectiveness and, in many cases, cost reduction. The FDA and foreign regulatory
authorities have substantial discretion to require additional testing, to delay or withhold registration and marketing
approval and to otherwise preclude distribution and sale of product.

Even if the Company is successful in developing new products, it will not be able to market any of those
products unless and until it has obtained all required regulatory approvals in each jurisdiction where it proposes to
market the new products. Once obtained, the Company must maintain approval as long as it plans to market its new
products in each jurisdiction where approval is required. The Company’s failure to obtain approval, significant
delays in the approval process, or its failure to maintain approval in any jurisdiction will prevent it from selling the
new products in that jurisdiction until approval is obtained, if ever. The Company would not be able to realize
revenues for those new products in any jurisdiction where it does not have approval.

Developments following regulatory approval may adversely affect sales of the Company’s

products.

Even after a product reaches market, certain developments following regulatory approval, including
results in post-marketing Phase IV trials or other studies, may decrease demand for the Company’s products,
including the following:

•

the re-review of products that are already marketed;

• new scientific information and evolution of scientific theories;

•

the recall or loss of marketing approval of products that are already marketed;

• changing government standards or public expectations regarding safety, efficacy or

labeling

changes; and

• greater scrutiny in advertising and promotion.

In the past several years, clinical trials and post-marketing surveillance of certain marketed drugs of the
Company and of competitors within the industry have raised concerns that have led to recalls, withdrawals or
adverse labeling of marketed products. Clinical trials and post-marketing surveillance of certain marketed drugs
also have raised concerns among some prescribers and patients relating to the safety or efficacy of pharmaceutical
products in general that have negatively affected the sales of such products. In addition, increased scrutiny of the
outcomes of clinical trials has led to increased volatility in market reaction. Further, these matters often attract
litigation and, even where the basis for the litigation is groundless, considerable resources may be needed to
respond.

In addition, following the wake of product withdrawals and other significant safety issues, health
authorities such as the FDA, the EMA and Japan’s Pharmaceutical and Medical Device Agency have increased their
focus on safety when assessing the benefit/risk balance of drugs. Some health authorities appear to have become
more cautious when making decisions about approvability of new products or indications and are re-reviewing
select products that are already marketed, adding further to the uncertainties in the regulatory processes. There is
also greater regulatory scrutiny, especially in the United States, on advertising and promotion and, in particular,
direct-to-consumer advertising.

If previously unknown side effects are discovered or if there is an increase in negative publicity
regarding known side effects of any of the Company’s products, it could significantly reduce demand for the
product or require the Company to take actions that could negatively affect sales, including removing the product
from the market, restricting its distribution or applying for labeling changes. Further, in the current environment in
which all pharmaceutical companies operate, the Company is at risk for product liability and consumer protection
claims and civil and criminal governmental actions related to its products, research and/or marketing activities.

The Company faces intense competition from lower-cost generic products.

In general, the Company faces increasing competition from lower-cost generic products. The patent
rights that protect its products are of varying strengths and durations. In addition, in some countries, patent

protection is significantly weaker than in the United States or in the EU. In the United States, political pressure to
reduce spending on prescription drugs has led to legislation which encourages the use of generic products. Although
it is the Company’s policy to actively protect its patent rights, generic challenges to the Company’s products can
arise at any time, and it may not be able to prevent the emergence of generic competition for its products.

Loss of patent protection for a product typically is followed promptly by generic substitutes, reducing the
Company’s sales of that product. Availability of generic substitutes for the Company’s drugs may adversely affect
its results of operations and cash flow. In addition, proposals emerge from time to time in the United States and
other countries for legislation to further encourage the early and rapid approval of generic drugs. Any such proposal
that is enacted into law could worsen this substantial negative effect on the Company’s sales and, potentially, its
business, cash flow, results of operations, financial position and prospects.

The Company faces intense competition from competitors’ products which, in addition to other

factors, could in certain circumstances lead to non-cash impairment charges.

The Company’s products face intense competition from competitors’ products. This competition may
increase as new products enter the market. In such an event, the competitors’ products may be safer or more
effective or more effectively marketed and sold than the Company’s products. Alternatively, in the case of generic
competition, including the generic availability of competitors’ branded products, they may be equally safe and
effective products that are sold at a substantially lower price than the Company’s products. As a result, if the
Company fails to maintain its competitive position, this could have a material adverse effect on its business, cash
flow, results of operations, financial position and prospects. In addition, if legacy Schering-Plough products that
were measured at fair value and capitalized in connection with the Merger, such as Saphris, or former Merck/
Schering Plough Partnership products, Vytorin or Zetia, experience difficulties in the market that negatively impact
product cash flows, the Company may recognize material non-cash impairment charges with respect to the value of
those products. These non-cash impairment charges, which the Company anticipates would be excluded from the
Company’s non-GAAP earnings, could be material to the Company’s future GAAP earnings.

The Company faces pricing pressure with respect to its products.

The Company faces increasing pricing pressure globally from managed care organizations, government
agencies and programs that could negatively affect the Company’s sales and profit margins. In the United States,
these include (i) practices of managed care groups and institutional and governmental purchasers, and
(ii) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug
Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act. Changes to the
health care system enacted as part of health care reform in the United States, as well as increased purchasing power
of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further
pricing pressures. In addition, the Company faces the risk of litigation with the government over its pricing
calculations.

Outside the United States, numerous major markets have pervasive government involvement in funding
health care and, in that regard, fix the pricing and reimbursement of pharmaceutical and vaccine products.
Consequently, in those markets, the Company is subject to government decision making and budgetary actions with
respect to its products.

The Company expects pricing pressures to increase in the future.

The health care industry will continue to be subject to increasing regulation and political action.

The Company believes that the health care industry will continue to be subject to increasing regulation as
well as political and legal action, as future proposals to reform the health care system are considered by Congress
and state legislatures. In 2010, major health care reform was adopted into law in the United States.

Important market reforms have begun and will continue through full implementation in 2014. The new
law is expected to expand access to health care to more than 32 million Americans by the end of the decade. In
2011, Merck incurred additional costs as a result of the new law, including increased Medicaid rebates and other
impacts that reduced revenues. In 2010, the minimum rebate to states participating in the Medicaid program

increased from 15.1% to 23.1% on the Company’s branded prescription drugs; the Medicaid rebate was extended to
Medicaid Managed Care Organizations; and eligibility for the federal 340B drug discount program was extended to
rural referral centers, sole community hospitals, critical access hospitals, certain free standing cancer hospitals, and
certain additional children’s hospitals.

In addition, the law requires drug manufacturers to pay a 50% discount to Medicare Part D beneficiaries
when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”). Also, beginning in 2011, the
Company is now required to pay an annual health care reform fee, which is being assessed on all branded
prescription drug manufacturers and importers. The fee is calculated based on the industry’s total sales of branded
prescription drugs to specified government programs. The percentage of a manufacturer’s sales that are included is
determined by a tiered scale based on the manufacturer’s individual revenues. Each manufacturer’s portion of the
total annual fee is based on the manufacturer’s proportion of the total includable sales in the prior year. The annual
industry fee for 2011 was $2.5 billion and the annual industry fee for 2012 is $2.8 billion.

The Company cannot predict the likelihood of future changes in the health care industry in general, or the
pharmaceutical industry in particular, or what impact they may have on the Company’s results of operations,
financial condition or business.

The current uncertainty in global economic conditions together with austerity measures being

taken by certain governments could negatively affect the Company’s operating results.

The current uncertainty in global economic conditions may result in a further slowdown to the global
economy that could affect the Company’s business by reducing the prices that drug wholesalers and retailers,
hospitals, government agencies and managed health care providers may be able or willing to pay for the Company’s
products or by reducing the demand for the Company’s products, which could in turn negatively impact the
Company’s sales and result in a material adverse effect on the Company’s business, cash flow, results of operations,
financial position and prospects.

While many of the Company’s brands experienced positive growth trends in the EU during 2011, the
environment in the EU and across Europe continues to be challenging. Many countries have announced austerity
measures aimed at reducing costs in areas such as health care. The implementation of pricing actions varies by
country and many have announced measures to reduce prices of generic and patented drugs. While the Company is
taking steps to mitigate the immediate impact in the EU, the austerity measures negatively affected the Company’s
revenue performance in 2011 and the Company anticipates mid-single digit pricing pressures in 2012 across
Europe. Furthermore,
the Company’s revenue
performance in 2012 more than the Company anticipates. Lastly, in 2012, the Company will be subject to biennial
price reductions in Japan.

these European austerity measures could negatively affect

Furthermore, the Company believes the credit and economic conditions within Greece, Spain, Italy and
Portugal, among other members of the EU, have deteriorated during 2011 and may continue to deteriorate in 2012.
These conditions, as well as inherent variability of timing of cash receipts, have resulted in, and may continue to
result in, an increase in the average length of time that it takes to collect on the accounts receivable outstanding in
these countries and may also impact the likelihood of collecting 100% of outstanding accounts receivable. As of
December 31, 2011, the Company’s accounts receivable in Greece, Italy, Spain and Portugal totaled approximately
$1.6 billion. Of this amount, hospital and public sector receivables were approximately $1.1 billion in the aggregate,
of which approximately 8%, 36%, 47% and 9% related to Greece, Italy, Spain and Portugal, respectively. As of
December 31, 2011,
the Company’s total accounts receivable outstanding for more than one year were
approximately $400 million, of which approximately 90% related to accounts receivable in Greece, Italy, Spain and
Portugal, mostly comprised of hospital and public sector receivables.

If the conditions in Europe worsen and one or more countries in the euro zone exits the euro zone and
reintroduces its legacy currency, the resulting economic and currency impacts in the affected markets and globally
could have a material adverse effect on the Company’s results.

The Company has significant global operations, which expose it to additional risks, and any

adverse event could have a material negative impact on the Company’s results of operations.

The extent of the Company’s operations outside the United States are significant. Risks inherent in

conducting a global business include:

• changes in medical reimbursement policies and programs and pricing restrictions in key markets;

• multiple regulatory requirements that could restrict the Company’s ability to manufacture and sell its

products in key markets;

•

trade protection measures and import or export licensing requirements;

foreign exchange fluctuations;

• diminished protection of intellectual property in some countries; and

• possible nationalization and expropriation.

In addition, there may be changes to the Company’s business and political position if there is instability,
disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil
insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or
disease.

The Company has experienced difficulties and delays in manufacturing of certain of its products.

As previously disclosed, Merck has, in the past, experienced difficulties in manufacturing certain of its
vaccines and other products. Similarly, the Company has, in the past, experienced difficulties manufacturing certain
of its animal health products and is currently experiencing difficulty manufacturing certain women’s health
products. The Company is working on its manufacturing issues, but there can be no assurance of when or if these
issues will be finally resolved.

In addition to the difficulties that the Company is experiencing currently, the Company may experience
difficulties and delays inherent in manufacturing its products, such as (i) failure of the Company or any of its
vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and
quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product
manufacturing; (ii) construction delays related to the construction of new facilities or the expansion of existing
facilities,
including those intended to support future demand for the Company’s products; and (iii) other
manufacturing or distribution problems including changes in manufacturing production sites and limits to
manufacturing capacity due to regulatory requirements, changes in types of products produced, or physical
limitations that could impact continuous supply. Manufacturing difficulties can result in product shortages, leading
to lost sales.

The Company faces significant litigation related to Vioxx.

On September 30, 2004, Merck voluntarily withdrew Vioxx, its arthritis and acute pain medication, from
the market worldwide. Although Merck has settled the major portion of the U.S. Product Liability litigation, the
Company still faces material litigation arising from the voluntary withdrawal of Vioxx.

In addition to the Vioxx Product Liability lawsuits, various purported class actions and individual
lawsuits have been brought against Merck and several current and former officers and directors of Merck alleging
that Merck made false and misleading statements regarding Vioxx in violation of the federal securities laws and
state laws (all of these suits are referred to as the “Vioxx Securities Lawsuits”). The Vioxx Securities Lawsuits have
been transferred by the Judicial Panel on Multidistrict Litigation (the “JPML”) to the U.S. District Court for the
District of New Jersey before District Judge Stanley R. Chesler for inclusion in a nationwide MDL (the
“Shareholder MDL”), and have been consolidated for all purposes. The Vioxx Securities Lawsuits are discussed
more fully in Item 8. “Financial Statements and Supplementary Data,” Note 12. “Contingencies and Environmental
Liabilities” below. Merck has also been named as a defendant in actions in various countries outside the United
States. (All of these suits are referred to as the “Vioxx Foreign Lawsuits”.) Merck has also been sued by a number
of states, one county and a private citizen as a qui tam lawsuit with respect to the marketing of Vioxx.

As previously disclosed,

issued subpoenas requesting
information relating to Merck’s research, marketing and selling activities with respect to Vioxx in a federal health
care investigation under criminal statutes. In 2010, the Company established a $950 million reserve (the “Vioxx
Liability Reserve”) in connection with the anticipated resolution of the DOJ’s investigation.

the U.S. Department of Justice (“DOJ”)

On November 22, 2011, the Company announced that it had reached a resolution with federal and state
authorities regarding this matter, pending Court approval. Under civil settlement agreements signed with the United
States and individually with 44 states and the District of Columbia, Merck will pay approximately two-thirds of the
reserved charge to resolve civil allegations related to Vioxx. As a result, the United States and the participating
states have released Merck from civil liability related to the governments’ allegations regarding the sale and
promotion of Vioxx. The Company also has agreed to plead guilty to one count of misdemeanor misbranding of
Vioxx under the Federal Food, Drug, and Cosmetic Act by promoting the drug for the treatment of rheumatoid
arthritis prior to the FDA’s approval of that indication in April 2002. The Company will pay a fine of approximately
one-third of the reserved amount to the federal government as part of the plea agreement. With regard to the
non-participating states, Merck continues to face lawsuits filed by those states.

On December 16, 2011, the United States District Court for the District of Massachusetts conducted a
hearing with regard to the resolution. During that hearing, the parties advised the Court as to the nature of the
resolution and the core documents comprising the resolution. The Court scheduled a subsequent hearing for March
2012, during which the Court may issue a ruling concerning whether it accepts Merck’s plea and the resolution.

The Vioxx litigation is discussed more fully in Item 8. “Financial Statements and Supplementary Data,”
Note 12. “Contingencies and Environmental Liabilities” below. A trial in the Missouri state court action is
scheduled to begin on May 12, 2012. The Company cannot predict the timing of any other trials related to the Vioxx
litigation. The Company believes that it has meritorious defenses to the Vioxx Product Liability lawsuits, Vioxx
Securities Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) and will vigorously defend
against them. The Company’s insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover
its defense costs and any losses.

The Company is not currently able to estimate any additional amounts that it may be required to pay in
connection with the Vioxx Lawsuits. These proceedings are still expected to continue for years and the Company
cannot predict the course the proceedings will take. In view of the inherent difficulty of predicting the outcome of
litigation, particularly where there are many claimants and the claimants seek unspecified damages, the Company is
unable to predict the outcome of these matters, and at this time cannot reasonably estimate the possible loss or range
of loss with respect to the remaining Vioxx Lawsuits. The Company has not established any reserves for any
potential liability relating to the remaining Vioxx Lawsuits other than the Vioxx Liability Reserve and a reserve
related to the settlement of the Canadian Vioxx litigation discussed in Item 8. “Financial Statements and
Supplementary Data,” Note 12. “Contingencies and Environmental Liabilities” below.

A series of unfavorable outcomes in the Vioxx Lawsuits resulting in the payment of substantial damages
could have a material adverse effect on the Company’s business, cash flow, results of operations, financial position
and prospects.

Issues concerning Vytorin and the ENHANCE clinical trial have had an adverse effect on sales of
Vytorin and Zetia in the United States and results from ongoing trials could have an adverse effect on such
sales.

The Company sells Vytorin and Zetia. As previously disclosed, in January 2008, the legacy companies
announced the results of the ENHANCE clinical trial, an imaging trial in 720 patients with heterozygous familial
hypercholesterolemia, a rare genetic condition that causes very high levels of LDL “bad” cholesterol and greatly
increases the risk for premature coronary artery disease. As previously reported, despite the fact that ezetimibe/
simvastatin 10/80 mg (Vytorin) significantly lowered LDL “bad” cholesterol more than simvastatin 80 mg alone,
there was no significant difference between treatment with ezetimibe/simvastatin and simvastatin alone on the
pre-specified primary endpoint, a change in the thickness of carotid artery walls over two years as measured by
ultrasound. The IMPROVE-IT trial is underway and is designed to provide cardiovascular outcomes data for
ezetimibe/simvastatin in patients with acute coronary syndrome. No incremental benefit of ezetimibe/simvastatin on

cardiovascular morbidity and mortality over and above that demonstrated for simvastatin has been established. In
January 2009, the FDA announced that it had completed its review of the final clinical study report of ENHANCE.
The FDA stated that the results from ENHANCE did not change its position that elevated LDL cholesterol is a risk
factor for cardiovascular disease and that lowering LDL cholesterol reduces the risk for cardiovascular disease. For
a discussion concerning shareholder litigation arising out of the ENHANCE study, see Item 8. “Financial
Statements and Supplementary Data,” Note 12. “Contingencies and Environmental Liabilities” below.

The IMPROVE-IT trial is scheduled for completion in 2013. In the IMPROVE-IT trial, a blinded interim
efficacy analysis was conducted by the DSMB for the trial when approximately 50% of the endpoints were accrued.
The DSMB recommended continuing the trial with no changes in the study protocol. Another blinded interim
efficacy analysis is planned by the DSMB in the first quarter of 2012 when approximately 75% of the primary
events have been accrued. If, based on the results of the interim analysis, the trial were to be halted because of
concerns related to Vytorin, that could have a material adverse effect on sales of Vytorin and Zetia.

These issues concerning the ENHANCE clinical trial have had an adverse effect on sales of Vytorin and
Zetia and could continue to have an adverse effect on such sales. If the results of the IMPROVE-IT trial fail to
demonstrate an incremental benefit of ezetimibe/simvastatin on cardiovascular morbidity and mortality over and
above that demonstrated for simvastatin, sales of Zetia and Vytorin could be materially adversely affected. If sales
of such products are materially adversely affected, the Company’s business, cash flow, results of operations,
financial position and prospects could also be materially adversely affected and the Company could be required to
record a material non-cash impairment charge. In addition, unfavorable outcomes resulting from the shareholder
litigation concerning the ENHANCE clinical trial results could have a material adverse effect on the Company’s
business, cash flow, results of operations, financial position and prospects.

The Company may fail to realize all of the anticipated cost savings, revenue enhancements and
other benefits expected from the Merger, which could adversely affect the value of the Company’s common
stock.

The success of the Merger will depend, in part, on the Company’s ability to successfully combine the
businesses of Merck and Schering-Plough and realize the anticipated benefits and cost savings from the
combination of the two companies. If the combined company is not able to achieve all of these objectives within the
anticipated time frame, the value of the Company’s common stock may be adversely affected.

It is possible that the integration process could result in the loss of key employees, result in the disruption
of the Company’s ongoing business or identify inconsistencies in standards, controls, procedures and policies that
adversely affect our ability to maintain relationships with customers, suppliers, distributors, creditors, lessors,
clinical trial investigators or managers or to achieve the anticipated benefits of the Merger.

Specifically, issues that must be addressed in integrating the operations of the two legacy companies in

order to realize the anticipated benefits of the Merger include, among other things:

•

integrating the research and development, manufacturing, distribution, marketing and promotion
activities and information technology systems of Merck and Schering-Plough;

• conforming standards, controls, procedures and accounting and other policies, business cultures and

compensation structures between the companies;

•

identifying and eliminating redundant and underperforming operations and assets; and

• managing tax costs or inefficiencies associated with integrating the operations of the combined

company.

Integration efforts between the two companies have and will continue to divert management attention
and resources. The Company’s integration efforts involve plans to close or sell certain facilities worldwide.
Implementation of any such plans is subject to satisfaction of local legal requirements including, but not limited to,
compliance with relevant information and consultation obligations, where applicable. These processes may result in
delays or the failure of the Company to realize all of its anticipated synergies. An inability to realize the full extent
of the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an
adverse effect on the Company’s business and results of operations, which may affect the value of the shares of
Company common stock.

In addition, the actual integration may result in additional and unforeseen expenses, such as new
information technology systems, and the anticipated benefits of the integration plan may not be realized. Actual cost
and sales synergies may be lower than the Company expects and may take longer to achieve than anticipated. If the
Company is not able to adequately address these challenges, it may be unable to successfully integrate the
operations of the two legacy companies, or to realize the anticipated benefits of the integration of the two legacy
companies.

Delays encountered in the integration process could have a material adverse effect on the revenues,
expenses, operating results and financial condition of the Company. Although the Company expects significant
benefits, such as increased cost savings, to result from the Merger, there can be no assurance that the Company will
realize all of these anticipated benefits.

The Company may not be able to realize the expected benefits of its investments in emerging

markets.

The Company has been taking steps to increase its presence in emerging markets. However, there is no
guarantee that the Company’s efforts to expand sales in emerging markets will succeed. Some countries within
emerging markets may be especially vulnerable to periods of global financial instability or may have very limited
resources to spend on health care. In order for the Company to successfully implement its emerging markets
strategy, it must attract and retain qualified personnel. The Company may also be required to increase its reliance on
third-party agents within less developed markets. In addition, many of these countries have currencies that fluctuate
substantially and if such currencies devalue and we cannot offset the devaluations, the Company’s financial
performance within such countries could be adversely affected.

For all these reasons, sales within emerging markets carry significant risks. However, a failure to
continue to expand the Company’s business in emerging markets could have a material adverse effect on the
business, financial condition or results of the Company’s operations.

The Company is exposed to market risk from fluctuations in currency exchange rates and interest

rates.

The Company operates in multiple jurisdictions and, as such, virtually all sales are denominated in
currencies of the local jurisdiction. Additionally, the Company has entered and will enter into acquisition, licensing,
borrowings or other financial transactions that may give rise to currency and interest rate exposure.

Since the Company cannot, with certainty, foresee and mitigate against such adverse fluctuations,
fluctuations in currency exchange rates and interest rates could negatively affect the Company’s results of
operations, financial position and cash flows.

In order to mitigate against the adverse impact of these market fluctuations, the Company will from time
to time enter into hedging agreements. While hedging agreements, such as currency options and interest rate swaps,
may limit some of the exposure to exchange rate and interest rate fluctuations, such attempts to mitigate these risks
may be costly and not always successful.

The Company is subject to evolving and complex tax laws, which may result in additional liabilities

that may affect results of operations.

The Company is subject to evolving and complex tax laws in the jurisdictions in which it operates.
Significant judgment is required for determining the Company’s tax liabilities, and the Company’s tax returns are
periodically examined by various tax authorities. The Company believes that its accrual for tax contingencies is
adequate for all open years based on past experience, interpretations of tax law, and judgments about potential
actions by tax authorities; however, due to the complexity of tax contingencies, the ultimate resolution of any tax
matters may result in payments greater or less than amounts accrued.

to the
In February 2011, President Obama’s administration re-proposed significant changes
U.S. international tax laws, including changes that would tax companies on “excess returns” attributable to certain
offshore intangible assets, limit U.S. tax deductions for expenses related to un-repatriated foreign-source income

and modify the U.S. foreign tax credit rules. Other potentially significant changes to the U.S. international laws,
including a move toward a territorial tax system, have been set out by various Congressional committees. The
Company cannot determine whether these proposals will be enacted into law or what, if any, changes may be made
to such proposals prior to their being enacted into law. If these or other changes to the U.S. international tax laws
are enacted, they could have a significant impact on the financial results of the Company.

In addition, the Company may be impacted by changes in tax laws, including tax rate changes, changes
to the laws related to the remittance of foreign earnings (deferral), or other limitations impacting the U.S. tax
treatment of foreign earnings, new tax laws, and revised tax law interpretations in domestic and foreign
jurisdictions.

Pharmaceutical products can develop unexpected safety or efficacy concerns.

Unexpected safety or efficacy concerns can arise with respect to marketed products, whether or not
scientifically justified, leading to product recalls, withdrawals, or declining sales, as well as product liability,
consumer fraud and/or other claims, including potential civil or criminal governmental actions.

Changes in laws and regulations could adversely affect the Company’s business.

All aspects of the Company’s business, including research and development, manufacturing, marketing,
pricing, sales, litigation and intellectual property rights, are subject to extensive legislation and regulation. Changes
in applicable federal and state laws and agency regulations could have a material adverse effect on the Company’s
business.

Reliance on third party relationships and outsourcing arrangements could adversely affect the

Company’s business.

The Company depends on third parties, including suppliers, alliances with other pharmaceutical and
biotechnology companies, and third party service providers, for key aspects of its business including development,
manufacture and commercialization of its products and support for its information technology systems. Failure of
these third parties to meet their contractual, regulatory and other obligations to the Company or the development of
factors that materially disrupt the relationships between the Company and these third parties could have a material
adverse effect on the Company’s business.

The Company is increasingly dependent on sophisticated information technology and infrastructure.

The Company is increasingly dependent on sophisticated information technology and infrastructure. Any
significant breakdown, intrusion, interruption or corruption of these systems or data breaches could have a material
adverse effect on our business. In addition, the Company currently is proceeding with a multi-year implementation
of an enterprise wide resource planning system, which for certain operations in the United States began in 2010 and
will be further implemented for U.S. operations in 2012 and includes modification to the design, operation and
documentation of its internal controls over financial reporting. The Company implemented the resource planning
system in major European markets and Canada in 2011 and intends to implement it in additional markets in 2012.
Any material problems in the implementation could have a material adverse effect on the Company’s business.

Negative events in the animal health industry could have a negative impact on future results of

operations.

Future sales of key animal health products could be adversely impacted by a number of risk factors
including certain risks that are specific to the animal health business. For example, the outbreak of disease carried
by animals, such as Bovine Spongiform Encephalopathy or mad cow disease, could lead to their widespread death
and precautionary destruction as well as the reduced consumption and demand for animals, which could adversely
impact the Company’s results of operations. Also, the outbreak of any highly contagious diseases near the
Company’s main production sites could require the Company to immediately halt production of vaccines at such
sites or force the Company to incur substantial expenses in procuring raw materials or vaccines elsewhere. Other
risks specific to animal health include epidemics and pandemics, government procurement and pricing practices,

weather and global agribusiness economic events. As the Animal Health segment of the Company’s business
becomes more significant, the impact of any such events on future results of operations would also become more
significant.

Biologics carry unique risks and uncertainties, which could have a negative impact on future

results of operations.

The successful development, testing, manufacturing and commercialization of biologics, particularly
human and animal health vaccines, is a long, expensive and uncertain process. There are unique risks and
uncertainties with biologics, including:

• There may be limited access to and supply of normal and diseased tissue samples, cell lines,
pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in
multiple jurisdictions, such as the United States and European countries within the EU, could result in
restricted access to, or transport or use of, such materials. If the Company loses access to sufficient
sources of such materials, or if tighter restrictions are imposed on the use of such materials, the
Company may not be able to conduct research activities as planned and may incur additional
development costs.

• The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the
EMA and other regulatory bodies. These regulations are often more complex and extensive than the
regulations applicable to other pharmaceutical products. For example, in the United States, a BLA,
including both preclinical and clinical trial data and extensive data regarding the manufacturing
procedures, is required for human vaccine candidates and FDA approval is required for the release of
each manufactured commercial lot.

• Manufacturing biologics, especially in large quantities, is often complex and may require the use of
innovative technologies to handle living micro-organisms. Each lot of an approved biologic must
undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics
requires facilities specifically designed for and validated for this purpose, and sophisticated quality
assurance and quality control procedures are necessary. Slight deviations anywhere in the
manufacturing process, including filling, labeling, packaging, storage and shipping and quality control
and testing, may result in lot failures, product recalls or spoilage. When changes are made to the
manufacturing process, the Company may be required to provide pre-clinical and clinical data
showing the comparable identity, strength, quality, purity or potency of the products before and after
such changes.

• Biologics are frequently costly to manufacture because production ingredients are derived from living
animal or plant material, and most biologics cannot be made synthetically. In particular, keeping up
with the demand for vaccines may be difficult due to the complexity of producing vaccines.

• The use of biologically derived ingredients can lead to allegations of harm, including infections or
allergic reactions, or closure of product facilities due to possible contamination. Any of these events
could result in substantial costs.

Product liability insurance for products may be limited, cost prohibitive or unavailable.

As a result of a number of factors, product liability insurance has become less available while the cost
has increased significantly. With respect to product liability, the Company self-insures substantially all of its risk, as
the availability of commercial insurance has become more restrictive. The Company has evaluated its risks and has
determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is
available and, as such, has no insurance for certain product liabilities effective August 1, 2004, including liability
for legacy Merck products first sold after that date. The Company will continually assess the most efficient means
to address its risk; however, there can be no guarantee that insurance coverage will be obtained or, if obtained, will
be sufficient to fully cover product liabilities that may arise.

Cautionary Factors that May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

This report and other written reports and oral statements made from time to time by the Company may
contain so-called “forward-looking statements,” all of which are based on management’s current expectations and
are subject to risks and uncertainties which may cause results to differ materially from those set forth in the
statements. One can identify these forward-looking statements by their use of words such as “anticipates,”
“expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also
identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to
address the Company’s growth strategy, financial results, product development, product approvals, product
potential, and development programs. One must carefully consider any such statement and should understand that
many factors could cause actual results to differ materially from the Company’s forward-looking statements. These
factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are
known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary
materially. The Company does not assume the obligation to update any forward-looking statement. The Company
cautions you not to place undue reliance on these forward-looking statements. Although it is not possible to predict
or identify all such factors, they may include the following:

• Competition from generic products as the Company’s products lose patent protection.

•

Increased “brand” competition in therapeutic areas important to the Company’s long-term business
performance.

• The difficulties and uncertainties inherent in new product development. The outcome of the lengthy
and complex process of new product development is inherently uncertain. A drug candidate can fail at
any stage of the process and one or more late-stage product candidates could fail to receive regulatory
approval. New product candidates may appear promising in development but fail to reach the market
because of efficacy or safety concerns, the inability to obtain necessary regulatory approvals, the
difficulty or excessive cost to manufacture and/or the infringement of patents or intellectual property
rights of others. Furthermore, the sales of new products may prove to be disappointing and fail to
reach anticipated levels.

• Pricing pressures, both in the United States and abroad, including rules and practices of managed care
groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and
health care reform, pharmaceutical reimbursement and pricing in general.

• Changes in government laws and regulations, including laws governing intellectual property, and the

enforcement thereof affecting the Company’s business.

• Efficacy or safety concerns with respect to marketed products, whether or not scientifically justified,

leading to product recalls, withdrawals or declining sales.

• Significant litigation related to Vioxx, and Vytorin and Zetia.

• Legal factors, including product liability claims, antitrust litigation and governmental investigations,
including tax disputes, environmental concerns and patent disputes with branded and generic
competitors, any of which could preclude commercialization of products or negatively affect the
profitability of existing products.

• Lost market opportunity resulting from delays and uncertainties in the approval process of the FDA

and foreign regulatory authorities.

•

Increased focus on privacy issues in countries around the world, including the United States and the
EU. The legislative and regulatory landscape for privacy and data protection continues to evolve, and
there has been an increasing amount of focus on privacy and data protection issues with the potential
to affect directly the Company’s business, including recently enacted laws in a majority of states in
the United States requiring security breach notification.

• Changes in tax laws including changes related to the taxation of foreign earnings.

• Changes in accounting pronouncements promulgated by standard-setting or regulatory bodies,
including the Financial Accounting Standards Board and the SEC, that are adverse to the Company.

• Economic factors over which the Company has no control, including changes in inflation, interest

rates and foreign currency exchange rates.

This list should not be considered an exhaustive statement of all potential risks and uncertainties. See

“Risk Factors” above.

Item 1B. Unresolved Staff Comments.

None

Item 2.

Properties.

commercial operations

The Company’s corporate headquarters is located in Whitehouse Station, New Jersey. The Company’s
are headquartered in Upper Gwynedd, Pennsylvania. The Company’s
U.S.
U.S. pharmaceutical business is conducted through divisional headquarters located in Upper Gwynedd and
Whitehouse Station. The Company’s vaccines business is conducted through divisional headquarters located in
West Point, Pennsylvania. As part of the Company’s worldwide strategic plan, Merck’s Animal Health global
headquarters functions, currently located in Boxmeer, the Netherlands, will be centralized in New Jersey. Principal
U.S. research facilities are located in Rahway, Kenilworth and Summit, New Jersey, West Point, Pennsylvania, Palo
Alto, California, and Elkhorn, Nebraska (Animal Health). Principal research facilities outside the U.S. are located in
the Netherlands. The Company also has production facilities for human health products at 15 locations in the United
States and Puerto Rico. Outside the United States, through subsidiaries, the Company owns or has an interest in
manufacturing plants or other properties in Australia, Canada, Japan, Singapore, South Africa, and other countries
in Western Europe, Central and South America, and Asia.

Capital expenditures were $1.7 billion in each of 2011 and 2010. In the United States, these amounted to
$1.2 billion for 2011 and $990 million for 2010. Abroad, such expenditures amounted to $516 million for 2011 and
$687 million for 2010.

The Company and its subsidiaries own their principal facilities and manufacturing plants under titles that
they consider to be satisfactory. The Company considers that its properties are in good operating condition and that
its machinery and equipment have been well maintained. Plants for the manufacture of products are suitable for
their intended purposes and have capacities and projected capacities adequate for current and projected needs for
existing Company products. Some capacity of the plants is being converted, with any needed modification, to the
requirements of newly introduced and future products.

Item 3. Legal Proceedings.

The information called for by this Item is incorporated herein by reference to Note 12. “Contingencies

and Environmental Liabilities” included in Part II, Item 8. “Financial Statements and Supplementary Data.”

Item 4. Mine Safety Disclosures.

Not Applicable

Executive Officers of the Registrant (ages as of February 1, 2012)

At the time of the Merger, November 3, 2009, certain executive officers assumed their position in the

newly merged company as noted below.

KENNETH C. FRAZIER — Age 57

December 2011 — Chairman, President and Chief Executive Officer, Merck & Co., Inc.

January 2011 — President and Chief Executive Officer, Merck & Co., Inc.

May 2010 — President, Merck & Co., Inc. — responsible for the Company’s three largest worldwide
divisions — Global Human Health, Merck Manufacturing Division and Merck Research Laboratories

November 2009 — Executive Vice President and President, Global Human Health, Merck & Co., Inc. —
responsible for the Company’s marketing and sales organizations worldwide, including the global
pharmaceutical and vaccine franchises

August 2007 — Executive Vice President and President, Global Human Health, Merck & Co., Inc. —
responsible for the Company’s marketing and sales organizations worldwide, including the global
pharmaceutical and vaccine franchises

November 2006 — Executive Vice President and General Counsel, Merck & Co., Inc. — responsible for
legal and public affairs functions and The Merck Company Foundation (a not-for-profit charitable
organization affiliated with the Company)

ADELE D. AMBROSE — Age 55

November 2009 — Senior Vice President and Chief Communications Officer, Merck & Co., Inc. —

responsible for the Global Communications organization

December 2007 — Vice President and Chief Communications Officer, Merck & Co., Inc. — responsible

for the Global Communications organization

RICHARD S. BOWLES III — Age 60

November 2009 — Executive Vice President and Chief Ethics & Compliance Officer, Merck & Co.,
Inc. — responsible for the Company’s compliance function, including Global Safety & Environment,
Systems Assurance, Ethics and Privacy

Prior to November 2009, Dr. Bowles was Senior Vice President, Global Quality Operations, Schering-

Plough Corporation since March 2001.

JOHN CANAN — Age 55

November 2009 — Senior Vice President Finance-Global Controller, Merck & Co., Inc. — responsible
for the Company’s global controller’s organization including all accounting, controls, external
reporting and financial standards and policies

January 2008 — Senior Vice President and Controller, Merck & Co., Inc. — responsible for the

Corporate Controller’s Group

September 2006 — Vice President, Controller, Merck & Co., Inc. — responsible for the Corporate

Controller’s Group

WILLIE A. DEESE — Age 56

November 2009 — Executive Vice President and President, Merck Manufacturing Division, Merck &
Co., Inc. — responsible for the Company’s global manufacturing, procurement, and distribution and
logistics functions

January 2008 — Executive Vice President and President, Merck Manufacturing Division, Merck & Co.,
Inc. — responsible for the Company’s global manufacturing, procurement, and distribution and
logistics functions

May 2005 — President, Merck Manufacturing Division, Merck & Co., Inc. — responsible for the

Company’s global manufacturing, procurement, and operational excellence functions

RICHARD R. DELUCA, JR. — Age 49

September 2011 — Executive Vice President and President, Merck Animal Health, Merck & Co., Inc. —

responsible for the Merck Animal Health organization

Prior to September 2011, Mr. DeLuca was Chief Financial Officer, Becton Dickinson Biosciences (a
medical technology company) since 2010 and President, Wyeth’s Fort Dodge Animal Health division
from 2007 to 2010. He also served as Chief Operating Officer, Fort Dodge from 2006 to 2007 and
Executive Vice President and Chief Financial Officer from 2002 to 2006.

CUONG VIET DO — Age 45

October 2011 — Executive Vice President and Chief Strategy Officer, Merck & Co., Inc. — responsible

for leading the formulation and execution of the Company’s long term strategic plan

Prior

to October 2011, Mr. Do was Senior Vice President, Corporate Strategy and Business
Development, TE Connectivity (a global company that designs, manufactures and markets products
for customers in a variety of industries) from 2009 to 2011 and Senior Vice President and Chief
Strategy Officer, Lenovo (a personal technology company) from 2006 to 2009.

MIRIAN M. GRADDICK-WEIR — Age 57

November 2009 — Executive Vice President, Human Resources, Merck & Co., Inc. — responsible for

the Global Human Resources organization

January 2008 — Executive Vice President, Human Resources, Merck & Co., Inc. — responsible for the

Global Human Resources organization

September 2006 — Senior Vice President, Human Resources, Merck & Co., Inc.

BRIDGETTE P. HELLER — Age 50

March 2010 — Executive Vice President and President, Merck Consumer Care, Merck & Co., Inc. —

responsible for the Merck Consumer Care organization

Prior to March 2010, Ms. Heller was President, Johnson & Johnson’s Baby Global Business Unit from

2007 to 2010 and President for Global Baby, Kids and Wound Care from 2005 to 2007.

PETER N. KELLOGG — Age 55

November 2009 — Executive Vice President and Chief Financial Officer, Merck & Co., Inc. —
investor relations, corporate

responsible for the Company’s worldwide financial organization,
development and licensing, and the Company’s joint venture relationships

August 2007 — Executive Vice President and Chief Financial Officer, Merck & Co., Inc. — responsible
for the Company’s worldwide financial organization, investor relations, corporate development and
licensing, and the Company’s joint venture relationships

Prior to August 2007, Mr. Kellogg was Executive Vice President, Finance and Chief Financial Officer of
Biogen Idec (a biotechnology company) from the merger of Biogen, Inc. and IDEC Pharmaceuticals
Corporation in November 2003.

PETER S. KIM — Age 53

November 2009 — Executive Vice President and President, Merck Research Laboratories, Merck & Co.,

Inc. — responsible for the Company’s research and development efforts worldwide

January 2008 — Executive Vice President and President, Merck Research Laboratories, Merck & Co.,

Inc. — responsible for the Company’s research and development efforts worldwide

January 2003 — President, Merck Research Laboratories, Merck & Co., Inc. — responsible for the

Company’s research and development efforts worldwide

BRUCE N. KUHLIK — Age 55

November 2009 — Executive Vice President and General Counsel, Merck & Co., Inc. — responsible for
legal, communications, and public policy functions and The Merck Company Foundation (a
not-for-profit charitable organization affiliated with the Company)

January 2008 — Executive Vice President and General Counsel, Merck & Co., Inc. — responsible for
legal, communications, and public policy functions and The Merck Company Foundation (a
not-for-profit charitable organization affiliated with the Company)

August 2007 — Senior Vice President and General Counsel, Merck & Co., Inc. — responsible for legal,
communications, and public policy functions and The Merck Company Foundation (a not-for-profit
charitable organization affiliated with the Company)

May 2005 — Vice President and Associate General Counsel, Merck & Co., Inc. — primary

responsibility for the Company’s Vioxx litigation defense

MICHAEL ROSENBLATT, M.D. — Age 64

December 2009 — Executive Vice President and Chief Medical Officer, Merck & Co., Inc. — the
Company’s primary voice to the global medical community on critical issues such as patient safety and
oversight for the Company’s Global Center for Scientific Affairs

Prior to December 2009, Dr. Rosenblatt was the Dean of Tufts University School of Medicine since

2003.

J. CHRIS SCALET — Age 53

November 2009 — Executive Vice President, Global Services, and Chief Information Officer, Merck &
Co., Inc. — responsible for Global Shared Services across the human resources, finance, site services
and information services function; and the enterprise business process redesign initiative

January 2008 — Executive Vice President, Global Services, and Chief Information Officer, Merck &
Co., Inc. — responsible for Global Shared Services across the human resources, finance, site services
and information services function; and the enterprise business process redesign initiative

January 2006 — Senior Vice President, Global Services, and Chief Information Officer, Merck & Co.,
Inc. — responsible for Global Shared Services across the human resources, finance, site services and
information services function; and the enterprise business process redesign initiative

ADAM H. SCHECHTER — Age 47

May 2010 — Executive Vice President and President, Global Human Health, Merck & Co., Inc. —

responsible for the Company’s pharmaceutical and vaccine worldwide business

November 2009 — President, Global Human Health, U.S. Market-Integration Leader, Merck & Co.,
Inc. — commercial responsibility in the United States for the Company’s portfolio of prescription
medicines. Leader for the integration efforts for the Merck/Schering-Plough merger across all
divisions and functions.

August 2007 — President, Global Pharmaceuticals, Global Human Health, Merck & Co., Inc. — global
responsibilities
the Company’s atherosclerosis/cardiovascular, diabetes/obesity, oncology,
specialty/neuroscience, respiratory, bone, arthritis and analgesia franchises as well as commercial
responsibility in the United States for the Company’s portfolio of prescription medicines

for

July 2006 — President, U.S. Human Health, Merck & Co., Inc. — commercial responsibility in the

United States for the Company’s portfolio of prescription medicines

All officers listed above serve at the pleasure of the Board of Directors. None of these officers was

elected pursuant to any arrangement or understanding between the officer and the Board.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities.

The principal market for trading of the Company’s Common Stock is the New York Stock Exchange
(“NYSE”) under the symbol MRK. The Common Stock market price information set forth in the table below is
based on historical NYSE market prices.

The following table also sets forth, for the calendar periods indicated, the dividend per share information.

Cash Dividends Paid per Common Share

2011

2010

Common Stock Market Prices

2011

High

Low

2010

High

Low

Year

4th Q

3rd Q 2nd Q

1st Q

$1.52

$ 0.38

$1.52

$ 0.38

4th Q 3rd Q 2nd Q 1st Q

$37.90

$36.56

$37.65

$37.62

$30.54

$29.47

$33.00

$31.06

$37.68

$37.58

$37.97

$41.56

$33.94

$33.65

$30.70

$35.76

As of January 31, 2012, there were approximately 165,500 shareholders of record.

Equity Compensation Plan Information

The following table summarizes information about the options, warrants and rights and other equity
compensation under the Company’s equity compensation plans as of the close of business on December 31, 2011.
The table does not include information about tax qualified plans such as the MSD Employee Savings and Security
Plan and the Schering-Plough Employees’ Savings Plan.

Plan Category

Equity compensation plans approved by security

holders(1)

Equity compensation plans not approved by security

holders(3)

Total

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)

Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)

Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding
securities
reflected in column (a))
(c)

230,760,164(2)

$39.51

163,758,580

—

230,760,164

$39.51

163,758,580

(1) Includes options to purchase shares of Company Common Stock and other rights under the following shareholder-approved plans: the Merck
Sharp & Dohme 2001, 2004, 2007 and 2010 Incentive Stock Plans, the Merck & Co., Inc. 2001, 2006 and 2010 Non-Employee Directors Stock
Option Plans, and the Merck & Co., Inc. Schering-Plough 1997, 2002 and 2006 Stock Incentive Plans.

(2) Excludes approximately 14,295,025 shares of restricted stock units and 2,128,907 performance share units (assuming maximum payouts) under
the Merck Sharp & Dohme 2004, 2007 and 2010 Incentive Stock Plans and 6,850,148 shares of restricted stock units and 292,905 performance
share units (excluding accrued dividends) under the Merck & Co., Inc. Schering-Plough 2006 Stock Incentive Plan. Also excludes
427,474 shares of phantom stock deferred under the MSD Deferral Program.

(3) The table does not include information for equity compensation plans and options and other warrants and rights assumed by the Company in
connection with mergers and acquisitions and pursuant to which there remain outstanding options or other warrants or rights (collectively,
“Assumed Plans”), which include the Rosetta Inpharmatics, Inc. 1997 and 2000 Employee Stock Option Plans. A total of 18,554 shares of
Merck Common Stock may be purchased under the Assumed Plans, at a weighted average exercise price of $52.51. No further grants may be
made under any Assumed Plans.

Performance Graph

The following graph assumes a $100 investment on December 31, 2006, and reinvestment of all
dividends, in each of the Company’s Common Shares, the S&P 500 Index, and a composite peer group of the major
U.S.-based pharmaceutical companies, which are: Abbott Laboratories, Bristol-Myers Squibb Company, Johnson &
Johnson, Eli Lilly and Company, and Pfizer Inc.

Comparison of Five-Year Cumulative Total Return*
Merck & Co., Inc., Composite Peer Group and S&P 500 Index

End of
Period Value

2011/2006
CAGR**

$166

119

11%

MERCK

PEER GRP.***

S&P 500

MERCK

S&P 500

PEER GRP.***

S
R
A
L
L
O
D

200

150

100

2006

2007

2008

2009

2010

2011

MERCK

PEER GRP.

S&P 500

2006

2007

2008

2009

2010

2011

100.00

113.75

73.83

147.09

151.26

165.69

100.00

101.95

90.90

100.00

105.49

66.47

98.06

84.06

97.63

118.68

96.74

98.79

*The Performance Graph reflects Schering-Plough’s stock performance from December 31, 2006 through the close of the
Merger and Merck’s stock performance from November 3, 2009 through December 31, 2011. Assumes the cash component
of the merger consideration was reinvested in Merck stock at the closing price on November 3, 2009.

** Compound Annual Growth Rate

***On October 15, 2009, Wyeth and Pfizer Inc. completed their previously announced merger (the “Pfizer/Wyeth Merger”)
where Wyeth became a wholly-owned subsidiary of Pfizer Inc. As discussed, on November 3, 2009, Merck and Schering-
Plough completed the Merger (together with the Pfizer/Wyeth Merger, the “Transactions”) in which Merck (subsequently
renamed Merck Sharp & Dohme Corp. (“MSD”)) became a wholly-owned subsidiary of Schering-Plough (subsequently
renamed Merck & Co., Inc.). As a result of the Transactions, Wyeth and MSD no longer exist as publicly traded entities and
ceased all trading of their common stock as of the close of business on their respective merger dates. Wyeth and MSD have
been permanently removed from the peer group index.

Item 6.

Selected Financial Data.

The following selected financial data should be read in conjunction with Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements
and notes thereto contained in Item 8. “Financial Statements and Supplementary Data” of this report.

Merck & Co., Inc. and Subsidiaries
($ in millions except per share amounts)

Results for Year:
Sales
Materials and production
Marketing and administrative
Research and development
Restructuring costs
Equity income from affiliates
Other (income) expense, net
Income before taxes
Taxes on income
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Merck & Co., Inc.
Basic earnings per common share attributable to Merck & Co., Inc.

common shareholders

Earnings per common share assuming dilution attributable to Merck &

Co., Inc. common shareholders

Cash dividends declared
Cash dividends paid per common share
Capital expenditures
Depreciation
Average common shares outstanding (millions)
Average common shares outstanding assuming dilution (millions)
Year-End Position:
Working capital
Property, plant and equipment, net
Total assets
Long-term debt
Total equity
Year-End Statistics:
Number of stockholders of record
Number of employees

2011(1)

2010(2)

2009(3)

2008(4)

2007(5)

$48,047
16,871
13,733
8,467
1,306
(610)
946
7,334
942
6,392
120
6,272

$45,987
18,396
13,125
11,111
985
(587)
1,304
1,653
671
982
121
861

$27,428
9,019
8,543
5,845
1,634
(2,235)
(10,668)
15,290
2,268
13,022
123
12,899

$23,850
5,583
7,377
4,805
1,033
(2,561)
(2,318)
9,931
1,999
7,932
124
7,808

$24,198
6,141
7,557
4,883
327
(2,977)
4,775
3,492
95
3,397
122
3,275

$2.04

$0.28

$5.67

$3.65

$1.51

$2.02
4,818
$1.52
1,723
2,351
3,071
3,094

$0.28
4,730
$1.52
1,678
2,638
3,095
3,120

$5.65
3,598
$1.52(6)
1,461
1,654
2,268
2,273

$16,936
16,297
105,128
15,525
56,943

$13,423
17,082
105,781
15,482
56,805

$12,791
18,279
112,314
16,095
61,485

$3.63
3,250
$1.52
1,298
1,445
2,136
2,143

$4,794
12,000
47,196
3,943
21,167

$1.49
3,311
$1.52
1,011
1,752
2,170
2,190

$2,787
12,346
48,351
3,916
20,591

166,100
86,000

171,000
94,000

175,600
100,000

165,700
55,200

173,000
59,800

(1) Amounts for 2011 include the amortization of purchase accounting adjustments, in-process research and development impairment charges
reflected in research and development expenses, the impact of restructuring actions, an arbitration settlement charge, and the favorable impact
of certain tax items, including a net favorable impact of approximately $700 million relating to the settlement of a federal income tax audit.

(2) Amounts for 2010 include the amortization of purchase accounting adjustments, in-process research and development impairment charges of
$2.4 billion reflected in research and development expenses, the impact of restructuring actions, a reserve related to Vioxx, the gain recognized
on AstraZeneca LP’s exercise of its option to acquire certain assets from the Company and the favorable impact of certain tax items. Amounts in
2010 include a reclassification of $120 million of expenses from marketing and administrative to research and development.

(3) Amounts for 2009 include the impact of the merger with Schering-Plough Corporation on November 3, 2009, including the recognition of a gain
representing the fair value step-up of Merck’s previously held interest in the Merck/Schering-Plough partnership as a result of obtaining a
controlling interest and the amortization of purchase accounting adjustments recorded in the post-Merger period. Also included in 2009, is a
gain on the sale of Merck’s interest in Merial Limited, the favorable impact of certain tax items and the impact of restructuring actions.

(4) Amounts for 2008 include a gain on distribution from AstraZeneca LP, a gain related to the sale of the remaining worldwide rights to Aggrastat,
the favorable impact of certain tax items, the impact of restructuring actions and an expense for a contribution to the Merck Company
Foundation.

(5) Amounts for 2007 include the impact of the U.S. Vioxx Settlement Agreement charge, restructuring actions, a civil governmental investigations
charge, an insurance arbitration settlement gain, in-process research and development expense resulting from an acquisition, gains on sales of
assets and product divestitures, as well as a net gain on the settlements of certain patent disputes.

(6) Amount reflects dividends paid to common shareholders of Merck. In addition, approximately $144 million of dividends were paid subsequent to
the merger with Schering-Plough, and $431 million were paid prior to the merger, relating to common stock and preferred stock dividends
declared by Schering-Plough in 2009.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Description of Merck’s Business

Merck & Co., Inc. (“Merck” or “the Company”) is a global health care company that delivers innovative
health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care
products, which it markets directly and through its joint ventures. The Company’s operations are principally
managed on a products basis and are comprised of four operating segments, which are the Pharmaceutical, Animal
Health, Consumer Care and Alliances segments, and one reportable segment, which is the Pharmaceutical segment.
The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly
by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and
preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these
human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies
and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other
institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered
at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers,
physician distributors and government entities. The Company also has animal health operations that discover,
develop, manufacture and market animal health products,
including vaccines, which the Company sells to
veterinarians, distributors and animal producers. Additionally, the Company has consumer care operations that
develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through
wholesale and retail drug, food chain and mass merchandiser outlets.

On November 3, 2009, legacy Merck & Co., Inc. and Schering-Plough Corporation (“Schering-Plough”)
merged (the “Merger”). The results of Schering-Plough’s business have been included in Merck’s financial
statements only for periods subsequent to the completion of the Merger. Therefore, Merck’s financial results for
2009 do not reflect a full year of Schering-Plough operations.

Overview

Worldwide sales totaled $48.0 billion in 2011, an increase of 4% compared with $46.0 billion in 2010.
Foreign exchange favorably affected global sales performance by 2%. The revenue increase was driven largely by
growth in Januvia and Janumet, treatments for type 2 diabetes, Singulair, a medicine for the chronic treatment of
asthma and the relief of symptoms of allergic rhinitis, Isentress, an antiretroviral therapy for use in combination
therapy for the treatment of HIV-1 infection, Gardasil, a vaccine to help prevent certain diseases caused by four
types of human papillomavirus (“HPV”), Simponi, a treatment for inflammatory diseases, RotaTeq, a vaccine to
help protect against rotavirus gastroenteritis in infants and children, Zetia, a cholesterol absorption inhibitor,
Pneumovax, a vaccine to help prevent pneumococcal disease, and Bridion, for the reversal of certain muscle
relaxants used during surgery. In addition, revenue in 2011 benefited from higher sales of the Company’s animal
health products and from the launch of Victrelis, a treatment for chronic hepatitis C. These increases were partially
offset by lower sales of Cozaar and Hyzaar, treatments for hypertension, which lost patent protection in the United
States in April 2010 and in a number of major European markets in March 2010, as well as by lower sales of
Caelyx, Subutex and Suboxone as the Company no longer has marketing rights to these products. Revenue was also
negatively affected by lower sales of Vytorin, a cholesterol modifying medicine, Temodar, a treatment for certain
types of brain tumors, ProQuad, a pediatric combination vaccine to help protect against measles, mumps, rubella
and varicella, and Varivax, a vaccine to help prevent chickenpox (varicella). In addition, as discussed below, the
ongoing implementation of certain provisions of U.S. health care reform legislation during 2011 resulted in further
increases in Medicaid rebates and other impacts that reduced revenues. Additionally, many countries in the
European Union (the “EU”) have undertaken austerity measures aimed at reducing costs in health care and have
implemented pricing actions that negatively impacted sales in 2011.

In April 2011, Merck and Johnson & Johnson (“J&J”) reached an agreement to amend the agreement
governing the distribution rights to Remicade and Simponi. This agreement concluded the arbitration proceeding

J&J initiated in May 2009. Under the terms of the amended distribution agreement, Merck relinquished marketing
rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the Middle
East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe,
Russia and Turkey (the “Retained Territories”). The Retained Territories represented approximately 70% of
Merck’s 2010 revenue of $2.8 billion from Remicade and Simponi. In addition, beginning July 1, 2011, all profits
derived from Merck’s exclusive distribution of the two products in the Retained Territories are being equally
divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011.

During 2011, the Company continued the advancement of drug candidates through its pipeline. Victrelis,
the Company’s innovative oral medicine for the treatment of chronic hepatitis C, was approved by the U.S. Food
and Drug Administration (the “FDA”) and the European Commission (the “EC”). The FDA also approved Juvisync,
a new treatment for type 2 diabetes that combines the active ingredient in the glucose-lowering medication Januvia
with the cholesterol-lowering medication Zocor. In addition, the EC approved Zoely, a monophasic combined oral
contraceptive tablet for use by women to prevent pregnancy. Cubicin, an antibacterial agent with activity against
methicillin-resistant Staphylococcus aureus (“MRSA”), for which the Company has licensed development and
distribution rights in Japan, was approved for use in that country.

In February 2012, the FDA approved Janumet XR, a new treatment for type 2 diabetes that combines
sitagliptin, which is the active component of Januvia, with extended-release metformin in a once-daily formulation;
Cosopt PF, Merck’s preservative-free formulation of Cosopt ophthalmic solution, indicated for the reduction of
elevated intraocular pressure in appropriate patients with open-angle glaucoma or ocular hypertension; and Zioptan,
a preservative-free prostaglandin analogue ophthalmic solution.

The Company also received additional indications for several of its existing products. During 2011, the
FDA approved an expanded age indication for Zostavax, a vaccine to help prevent shingles (herpes zoster), to
include adults ages 50 to 59. In addition, the FDA approved Sylatron for the adjuvant treatment of melanoma in
patients with microscopic or gross nodal involvement. Also, Simponi received an indication in the EU for use in
combination with methotrexate in adults with severe, active and progressive rheumatoid arthritis not previously
treated with methotrexate, having been shown to reduce the rate of progression of joint damage as measured by
X-ray and to improve physical function. In January 2012, the FDA approved the use of Isentress, in combination
with other antiretroviral medicines, for the treatment of HIV-1 infection in pediatric patients two years of age and
older and weighing at least 10 kg.

The Company currently has two candidates under review with the FDA: MK-8669, ridaforolimus, for the
treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable response to chemotherapy and
MK-0653C, Zetia (ezetimibe) combined with atorvastatin for the treatment of primary or mixed hyperlipidemia.
MK-8669 is also under review in the EU.

The Company currently has 19 candidates in Phase III development and anticipates filing a New Drug
Application (“NDA”) with the FDA with respect to certain of these candidates in 2012 including MK-4305,
suvorexant, an investigational treatment for insomnia; MK-8616, Bridion, a medication for the reversal of certain
muscle relaxants used during surgery; and V503, a nine-valent HPV vaccine. The Company also anticipates filings
in 2013 for, among others, MK-0822, odanacatib, an investigational treatment for osteoporosis, and MK-0524A,
Tredaptive, which is under development for the treatment of atherosclerosis.

Merck continues to pursue opportunities that have the potential to drive both near- and long-term growth.
During 2011, the Company completed a variety of transactions including the acquisition of Inspire Pharmaceuticals,
Inc., a specialty pharmaceutical company focused on developing and commercializing ophthalmic products.
Additionally, the Company entered into transactions designed to strengthen its presence in emerging markets in the
longer term.

Schering-Plough businesses. This Merger Restructuring Program is intended to optimize the cost structure of the
combined company. As part of this latest phase, the Company expects to reduce its workforce measured at the time
of the Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions
in this phase of
the Merger Restructuring Program relate to manufacturing (including Animal Health),
administrative and headquarters organizations. Previously announced workforce reductions of approximately 17%
the elimination of positions in sales, administrative and
in earlier phases of the program primarily reflect
headquarters organizations, as well as from the sale or closure of certain manufacturing and research and
development sites and the consolidation of office facilities. The Company will continue to hire employees in
strategic growth areas of the business as necessary. The Company will continue to pursue productivity efficiencies
in future
and evaluate its manufacturing supply chain capabilities on an ongoing basis which may result
restructuring actions. The Company recorded total pretax restructuring costs of $1.8 billion in 2011, $1.8 billion in
2010 and $1.5 billion in 2009 related to this program. The restructuring actions under the Merger Restructuring
Program are expected to be substantially completed by the end of 2013, with the exception of certain actions,
principally manufacturing-related, which are expected to be substantially completed by 2015, with the total
cumulative pretax costs estimated to be approximately $5.8 billion to $6.6 billion. The Company estimates that
approximately two-thirds of the cumulative pretax costs relate to cash outlays, primarily related to employee
separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the
accelerated depreciation of facilities to be closed or divested. The Company expects the Merger Restructuring
Program to yield annual savings by the end of 2013 of approximately $3.5 billion to $4.0 billion and annual savings
upon completion of the program of approximately $4.0 billion to $4.6 billion.

In November 2011, Merck’s Board of Directors raised the Company’s quarterly dividend to $0.42 per

share from $0.38 per share.

Earnings per common share assuming dilution attributable to common shareholders (“EPS”) for 2011
were $2.02, which reflect a net unfavorable impact resulting from acquisition-related costs, restructuring costs, as
well as the charge related to the settlement of the arbitration proceeding with J&J discussed above, partially offset
by the favorable impact of certain tax items and gains on the disposition of the Company’s interest in the Johnson &
Johnson°Merck Consumer Pharmaceuticals Company (“JJMCP”)
joint venture and the sale of certain
manufacturing facilities and related assets. Non-GAAP EPS in 2011 were $3.77 excluding these items (see “Non-
GAAP Income and Non-GAAP EPS” below).

Competition and the Health Care Environment

Competition

mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be
highly uncertain. An adverse result in a patent dispute can preclude commercialization of products or negatively
affect sales of existing products and could result in the recognition of an impairment charge with respect to certain
products. Competitive pressures have intensified as pressures in the industry have grown. The effect on operations
of competitive factors and patent disputes cannot be predicted.

The highly competitive animal health business is affected by several factors including regulatory and
the quality and price of the
introduction of generic products by

legislative issues, scientific and technological advances, product
Company’s products, effective promotional efforts and the frequent
competitors.

innovation,

Health Care Environment

Global efforts toward health care cost containment continue to exert pressure on product pricing and
market access. In the United States, federal and state governments for many years also have pursued methods to
reduce the cost of drugs and vaccines for which they pay. For example, federal laws require the Company to pay
specified rebates for medicines reimbursed by Medicaid and to provide discounts for outpatient medicines
purchased by certain Public Health Service entities and “disproportionate share” hospitals (hospitals meeting certain
criteria). Under the Federal Vaccines for Children entitlement program, the U.S. Centers for Disease Control and
Prevention (“CDC”) funds and purchases recommended pediatric vaccines at a public sector price for the
immunization of Medicaid-eligible, uninsured, Native American and certain underinsured children. Merck is
contracted to provide its pediatric vaccines to this program.

Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act. Changes to the
health care system enacted as part of health care reform in the United States, as well as increased purchasing power
of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in further
pricing pressures.

Additionally, the global economic downturn and the sovereign debt issues in certain European countries,
among other factors, have adversely impacted foreign receivables in certain European countries. While the
Company continues to receive payment on these receivables, these conditions have resulted in an increase in the
average length of time it takes to collect accounts receivable outstanding thereby adversely affecting cash flows.

The full impact of U.S. health care reform, as well as continuing budget pressures on governments

around the world, cannot be predicted at this time.

Government Regulation

The Company believes that it will continue to be able to conduct its operations, including launching new

drugs into the market, in this regulatory environment.

Access to Medicines

Building on the Company’s own efforts, Merck has undertaken collaborations with many stakeholders to

improve access to medicines and enhance the quality of life for people around the world.

Merck has also in the past provided funds to The Merck Company Foundation, an independent
organization, which has partnered with a variety of organizations dedicated to improving global health. One of these
partnerships is The African Comprehensive HIV/AIDS Partnership in Botswana, a collaboration with the
government of Botswana and the Bill & Melinda Gates Foundation, that was renewed in 2010 and supports
Botswana’s response to HIV/AIDS through a comprehensive and sustainable approach to HIV prevention, care,
treatment, and support.

Privacy and Data Protection

Operating Results

Segment composition reflects certain managerial changes that have been implemented. Consumer Care
product sales outside the United States and Canada, previously included in the Pharmaceutical segment, are now
included in the Consumer Care segment. Segment disclosures for prior years have been recast on a comparable
basis with 2011.

Sales

Worldwide sales totaled $48.0 billion in 2011, an increase of 4% compared with $46.0 billion in 2010.
Foreign exchange favorably affected global sales performance by 2%. The revenue increase was driven largely by
growth in Januvia and Janumet, Singulair, Isentress, Gardasil, Simponi, RotaTeq, Zetia, Pneumovax and Bridion.
In addition, revenue in 2011 benefited from higher sales of the Company’s animal health products and from the
launch of Victrelis. These increases were partially offset by lower sales of Cozaar and Hyzaar which lost patent
protection in the United States in April 2010 and in a number of major European markets in March 2010, as well as
by lower sales of Caelyx, Subutex and Suboxone as the Company no longer has marketing rights to these products.
Revenue was also negatively affected by lower sales of Vytorin, Temodar, ProQuad and Varivax. In addition, as
discussed above, the ongoing implementation of certain provisions of U.S. health care reform legislation during
2011 resulted in further increases in Medicaid rebates and other impacts that reduced revenues.

Domestic sales were $20.5 billion in 2011, an increase of 1% compared with $20.2 billion in 2010. The
domestic sales increase was driven by higher sales of Singulair, Januvia, Gardasil, Janumet, and Isentress, as well
as by the launch of Victrelis. These increases were partially offset by lower sales of Cozaar, Hyzaar, Vytorin,
Varivax and ProQuad.

Foreign sales were $27.6 billion in 2011, an increase of 7% compared with $25.8 billion in 2010 driven
by growth in Japan and in the emerging markets. Foreign exchange favorably affected foreign sales performance by
4% in 2011. Foreign sales growth reflects the strong performance of Januvia, Janumet, Singulair, Simponi,
Isentress, Zetia and Nasonex, as well as higher sales of animal health products, partially offset by lower sales of
Cozaar, Hyzaar and Temodar. Foreign sales represented 57% of total sales in 2011 and 56% of total sales in 2010.

While many of the Company’s brands experienced positive growth trends in the EU during 2011, the
environment in the EU continues to be challenging. Many countries have announced austerity measures, which
include the implementation of pricing actions to reduce prices of generic and patented drugs. While the Company is
taking steps to mitigate the impact in the EU, the austerity measures have negatively affected the Company’s
revenue performance in 2011 and the Company anticipates mid-single digit pricing pressures in 2012 across Europe
as well as from the biennial price reductions in Japan.

Worldwide sales totaled $46.0 billion in 2010 compared with $27.4 billion in 2009. Foreign exchange
favorably affected global sales performance by 1%. The revenue increase over 2009 was driven largely by
incremental sales resulting from the inclusion of a full year of results in 2010 for legacy Schering-Plough products
such as Remicade, Nasonex, Temodar, PegIntron and Clarinex, as well as by the inclusion of a full year of results
for Merck/Schering-Plough Partnership (“MSP Partnership”) products Zetia and Vytorin. Prior to the Merger,
substantially all sales of Zetia and Vytorin were recognized by the MSP Partnership and the results of Merck’s
interest in the MSP Partnership were recorded in Equity income from affiliates. As a result of the Merger, the MSP
Partnership became wholly owned by the Company and therefore revenues from these products are now reflected in
Sales. Additionally, the Company recognized a full year of sales in 2010 from legacy Schering-Plough animal
health and consumer care products. Sales for 2009 only include revenue from legacy Schering-Plough and MSP
Partnership products for the post-Merger period through December 31, 2009. Also contributing to the sales increase
was growth in Januvia and Janumet, Isentress and Singulair. These increases were partially offset by lower sales of
Cozaar, Hyzaar, Fosamax and Fosamax Plus D, and lower revenue from the Company’s relationship with AZLP.
Other products that experienced declines include Gardasil and Zocor. In addition, the implementation of certain
provisions of U.S. health care reform legislation during 2010 resulted in increased Medicaid rebates and other
impacts that reduced revenues.

Sales(1) of the Company’s products were as follows:

Years Ended December 31

Pharmaceutical:
Cardiovascular

Zetia
Vytorin
Integrilin

Diabetes and Obesity

Januvia
Janumet

Diversified Brands
Cozaar/Hyzaar
Zocor
Propecia
Claritin Rx
Remeron
Vasotec/Vaseretic
Proscar

Infectious Disease

Isentress
PegIntron
Cancidas
Primaxin
Invanz
Avelox
Noxafil
Crixivan/Stocrin
Rebetol
Victrelis

Neurosciences and Ophthalmology

Maxalt
Cosopt/Trusopt

Oncology

Temodar
Emend
Intron A

Respiratory and Immunology

Singulair
Remicade
Nasonex
Clarinex
Arcoxia
Simponi
Asmanex
Proventil
Dulera
Vaccines(2)
Gardasil
ProQuad/M-M-R II/Varivax
RotaTeq
Pneumovax
Zostavax

Women’s Health and Endocrine

Fosamax
NuvaRing
Follistim AQ
Implanon
Cerazette

Other pharmaceutical(3)

Total Pharmaceutical segment sales

Other segment sales(4)
Total segment sales

Other(5)

2011

2010

2009

$ 2,428
1,882
230

$ 2,297
2,014
266

3,324
1,363

1,663
456
447
314
241
231
223

1,359
657
640
515
406
322
230
192
174
140

639
477

935
419
194

5,479
2,667
1,286
621
431
264
206
155
96

1,209
1,202
651
498
332

2,385
954

2,104
468
447
296
223
255
216

1,090
737
611
610
362
316
198
206
221
—

550
484

1,065
378
209

4,987
2,714
1,219
623
398
97
208
210
8

988
1,378
519
376
243

403
441
46

1,922
658

3,561
558
440
71
38
311
291

752
149
617
689
293
66
34
206
36
—

575
503

188
317
38

4,660
431
165
101
358
4
37
26
—

1,118
1,369
522
346
277

855
623
530
294
268
3,521
41,289
6,327
47,616
431
$48,047

926
559
528
236
209
3,879
39,267
6,059
45,326
661
$45,987

1,100
88
96
37
35
1,263
25,236
2,114
27,350
78
$27,428

(1) Sales of legacy Schering-Plough products in 2009 are included only for the post-Merger period. In addition, prior to the Merger, substantially all sales of Zetia and
Vytorin were recognized by the MSP Partnership and the results of Merck’s interest in the MSP Partnership were recorded in Equity income from affiliates. As a
result of the Merger, the MSP Partnership became wholly owned by the Company; accordingly, all sales of MSP Partnership products after the Merger are reflected
in the table above. Sales of Zetia and Vytorin in 2009 reflect Merck’s sales of these products in Latin America which was not part of the MSP Partnership, as well as
sales of these products for the post-Merger period in 2009.

(2) These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which

are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

(3) Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.
(4) Reflects other non-reportable segments including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily relating to

sales of Nexium, as well as Prilosec. Revenue from AZLP was $1.2 billion, $1.3 billion and $1.4 billion in 2011, 2010 and 2009, respectively.

(5) Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and

other supply sales not included in segment results.

Pharmaceutical Segment Sales

Cardiovascular

Worldwide sales of Zetia (also marketed as Ezetrol outside the United States), a cholesterol absorption
inhibitor, increased 6% in 2011 to $2.4 billion reflecting higher sales in international markets, particularly in Japan,
due in part to the positive impact of foreign exchange, partially offset by volume declines in the United States.
Global sales of Vytorin (marketed outside the United States as Inegy), a combination product containing the active
ingredients of both Zetia and Zocor, declined 7% in 2011 to $1.9 billion reflecting volume declines in the United
States, partially offset by increases in international markets. Sales of Zetia and Vytorin were $403 million and
$441 million, respectively, for the post-Merger period in 2009. Prior to the Merger, substantially all sales of these
products were recognized by the MSP Partnership and the results of Merck’s interest in the MSP Partnership were
recorded in Equity income from affiliates. As a result of the Merger, the MSP Partnership became wholly owned by
the Company and therefore revenues from these products are now reflected in Sales. Total sales of Zetia and
Vytorin in 2009, including the sales recognized through the MSP Partnership, were $2.2 billion and $2.1 billion,
respectively.

In January 2012, the FDA approved an updated label for Vytorin that includes results from the SHARP
(Study of Heart and Renal Protection) clinical trial. In SHARP, Vytorin 10/20 mg lowered LDL (low-density
lipoprotein) cholesterol in patients with moderate to severe chronic kidney disease, and major vascular events were
reduced in the treatment group compared to placebo. The trial therefore demonstrated that treatment with Vytorin
10/20 mg versus placebo reduced the risk for major vascular events in this chronic kidney disease population.
Because SHARP studied the combination of simvastatin and ezetimibe compared with placebo, it was not designed
to assess the independent contributions of each drug to the observed effect; for this reason, the FDA did not approve
a new indication for Vytorin or for Zetia and the study’s efficacy results have not been incorporated into the label
for Zetia.

As previously disclosed, the Data and Safety Monitoring Board (“DSMB”) for IMPROVE-IT, a large
cardiovascular outcomes study evaluating Zetia/Vytorin in patients with acute coronary syndrome, plans to conduct
a second interim analysis for efficacy when approximately 75% of the pre-specified (5,250) primary clinical
endpoints have occurred. In September 2011, Merck was advised that the IMPROVE-IT executive committee had
decided to schedule the study’s second interim analysis in the first quarter of 2012, rather than as previously
anticipated in late 2011.

Other products contained in the Cardiovascular franchise include among others, Integrilin Injection, a
treatment for patients with acute coronary syndrome, which is sold by the Company in the United States and
Canada.

Diabetes and Obesity

Global sales of Januvia, Merck’s dipeptidyl peptidase-4 (“DPP-4”) inhibitor for the treatment of type 2
diabetes, rose 39% in 2011 to $3.3 billion reflecting volume growth in the United States, as well as in international
markets, particularly in Japan and across Europe. Sales of Januvia grew 24% in 2010 to $2.4 billion reflecting
continued growth both in the United States and internationally. DPP-4 inhibitors represent a class of prescription
medications that improve blood sugar control in patients with type 2 diabetes by enhancing a natural body system
called the incretin system, which helps to regulate glucose by affecting the beta cells and alpha cells in the pancreas.

Worldwide sales of Janumet, Merck’s oral antihyperglycemic agent that combines sitagliptin (Januvia)
with metformin in a single tablet to target all three key defects of type 2 diabetes, were $1.4 billion in 2011, $954
million in 2010 and $658 million in 2009 reflecting growth internationally due in part to ongoing launches in certain
markets, as well as growth in the United States.

In October 2011, the FDA approved Juvisync, a new treatment for type 2 diabetes that combines the
glucose-lowering medication sitagliptin, the active component of Januvia, with the cholesterol-lowering medication
Zocor. Juvisync is the first treatment option for health care providers to help patients who need the blood sugar-
lowering benefits of a DPP-4 inhibitor and the cholesterol-lowering benefits of simvastatin, with the convenience of
a single tablet once daily.

In February 2012, the FDA approved Janumet XR, a new treatment for type 2 diabetes that combines
sitagliptin with extended-release metformin. Janumet XR provides a convenient once-daily treatment option for
health care providers and patients who need help to control their blood sugar.

On February 17, 2012, the FDA sent a Warning Letter to the Company relating to Januvia and Janumet
stating that the Company did not fulfill a post-marketing requirement for a 3-month pancreatic safety study in a
diabetic rodent model treated with sitagliptin. Merck has been in communication with the FDA regarding this study
and Merck’s efforts to complete it in a timely and satisfactory manner. Under the terms of the Warning Letter,
within 30 days from the date of the letter, the Company must submit to the FDA a final study protocol for a new 3-
month rodent study that will satisfy the FDA’s requirements and a proposed revised timetable for completion of the
study. Within 6 months from the date of the letter, the FDA expects that the Company will have obtained agreement
with the FDA on an adequate study protocol and will have initiated the study. The letter states that failure to correct
the violation may result in regulatory actions by the FDA, including, but not limited to, civil money penalties.
Merck remains fully committed to fulfilling the FDA’s requirements.

Diversified Brands

Merck’s diversified brands are human health pharmaceutical products that are approaching the expiration
of their marketing exclusivity or are no longer protected by patents in developed markets, but continue to be a core
part of the Company’s offering in other markets around the world.

Global

sales of Cozaar and its companion agent Hyzaar

(a combination of Cozaar and
hydrochlorothiazide) for the treatment of hypertension declined 21% in 2011 to $1.7 billion and fell 41% in 2010 to
$2.1 billion. The patents that provided U.S. market exclusivity for Cozaar and Hyzaar expired in April 2010. In
addition, Cozaar and Hyzaar lost patent protection in a number of major European markets in March 2010.
Accordingly, the Company has experienced significant declines in Cozaar and Hyzaar sales and the Company
expects the declines to continue.

Other products contained in the Diversified Brands franchise include among others, Zocor, a statin for
modifying cholesterol; Propecia, a product for the treatment of male pattern hair loss; prescription Claritin for the
treatment of seasonal outdoor allergies and year-round indoor allergies; Remeron, an antidepressant; Vasotec and
Vaseretic for hypertension and/or heart failure; and Proscar, a urology product for the treatment of symptomatic
benign prostate enlargement. Remeron lost market exclusivity in the United States in January 2010 and has also lost
market exclusivity in most major European markets. The formulation/use patent that provides U.S. market
exclusivity for Propecia expires in October 2013, however as previously disclosed, by agreement, one generic
manufacturer has been given the right to enter the market in January 2013 and another has been given the right to
enter in July 2013.

Infectious Disease

Worldwide sales of Isentress, an HIV integrase inhibitor for use in combination with other antiretroviral
agents for the treatment of HIV-1 infection in treatment-naïve and treatment-experienced adults, grew 25% in 2011
to $1.4 billion reflecting volume growth in the United States and internationally, partially offset by unfavorable
pricing in European markets. Sales of Isentress increased 45% in 2010 to $1.1 billion primarily due to positive
performance in the United States, as well as internationally, resulting from continued uptake since launch. Isentress
works by inhibiting the insertion of HIV DNA into human DNA by the integrase enzyme. Inhibiting integrase from
performing this essential function helps to limit the ability of the virus to replicate and infect new cells. In January
2012, the FDA approved the use of Isentress in combination with other antiretroviral medicines, for the treatment of
HIV-1 infection in pediatric patients two years of age and older and weighing at least 10 kg.

Worldwide sales of PegIntron, a treatment for chronic hepatitis C, were $657 million in 2011, a decline
of 11% compared with $737 million of sales in 2010 reflecting competitive pressures. In addition, the Company
believes the sales decline was attributable in part to patient treatment being delayed by health care providers in
anticipation of new therapeutic options becoming available. In September 2010, the Company initiated a voluntary
recall of PegIntron single dose RediPen injection in the United States after consultation with the FDA, as well as
other recalls globally, resulting in a reduction to revenue in 2010 of approximately $20 million representing
estimated sales returns. In addition, the Company recognized a charge of approximately $40 million in Materials

and production primarily for inventory discard costs. The recall was conducted as a precautionary measure due to a
third-party manufacturing issue that could have affected a small number of RediPens. The recall was specific to
PegIntron RediPen and did not affect PegIntron vial products. Sales of PegIntron were $149 million for the post-
Merger period in 2009.

Sales of Primaxin, an anti-bacterial product, declined 16% in 2011 to $515 million and decreased 11% in
2010 to $610 million. These results primarily reflect lower volumes and unfavorable pricing due to competitive
pressures. Patents on Primaxin have expired worldwide and multiple generics have been launched in Europe.
Accordingly, the Company is experiencing a decline in sales of Primaxin and the Company expects the decline to
continue.

Other products contained in the Infectious Disease franchise include among others, Cancidas, an anti-
fungal product; Invanz for the treatment of certain infections; Avelox, a fluoroquinolone antibiotic for the treatment
of certain respiratory and skin infections; Noxafil for the prevention of certain invasive fungal infections; Crixivan
and Stocrin, antiretroviral therapies for the treatment of HIV infection; and Rebetol for use in combination with
PegIntron for treating chronic hepatitis C. The compound patent that provides U.S. market exclusivity for Cancidas
expires in September 2013.

Neurosciences and Ophthalmology

Global sales of Maxalt, Merck’s tablet for the acute treatment of migraine, increased 16% in 2011 to
$639 million reflecting a higher inventory level and favorable pricing in the United States. Sales of Maxalt declined
4% in 2010 to $550 million reflecting the generic availability of a competing product. The patent that provides U.S.
market exclusivity for Maxalt will expire in December 2012. U.S. sales of Maxalt were $451 million in 2011. In
addition, the patent that provides market exclusivity for Maxalt will expire in a number of major European markets
in February 2013. The Company anticipates that sales in the United States and in these European markets will
decline significantly after these patent expiries.

Worldwide sales of ophthalmic products Cosopt and Trusopt declined 1% in 2011 to $477 million
reflecting unfavorable pricing and volume declines in Europe that were mitigated in part by the positive impact of
foreign exchange, partially offset by higher Cosopt sales in Japan. Sales of Cosopt and Trusopt decreased 4% in
2010 to $484 million. The patent that provided U.S. market exclusivity for Cosopt and Trusopt has expired. Trusopt
has also lost market exclusivity in a number of major European markets. The patent for Cosopt will expire in a
number of major European markets in March 2013 and the Company expects sales in those markets to decline
significantly thereafter.

In February 2012, the FDA approved Cosopt PF, Merck’s preservative-free formulation of Cosopt
ophthalmic solution, indicated for the reduction of elevated intraocular pressure in appropriate patients with open-
angle glaucoma or ocular hypertension. The Company plans to launch Cosopt PF by the end of 2012.

Bridion, for the reversal of certain muscle relaxants used during surgery, is currently approved and has
been launched in many countries outside of the United States. Sales of Bridion were $201 million in 2011 and $103
million in 2010. Bridion is in Phase III development in the United States.

In 2009, the FDA approved Saphris (asenapine), an antipsychotic for the treatment of schizophrenia in
adults and for the acute treatment, as monotherapy or adjunctive therapy to lithium or valproate, of manic or mixed
episodes associated with bipolar I disorder in adults. In 2010, asenapine, sold under the brand name Sycrest,
received marketing approval in the EU for the treatment of moderate to severe manic episodes associated with
bipolar I disorder in adults. In 2010, Merck and H. Lundbeck A/S (“Lundbeck”) announced a worldwide

commercialization agreement for Sycrest sublingual tablets (5 mg, 10 mg). Under the terms of the agreement,
Lundbeck paid a fee and makes product supply payments in exchange for exclusive commercial rights to Sycrest in
all markets outside the United States, China and Japan. Merck’s sales of Saphris were $120 million in 2011.

Merck continues to focus on building the brand awareness of Saphris in the United States and the
Company continues to monitor and assess Saphris/Sycrest and the related intangible asset. If increasing the brand
awareness or Lundbeck’s launch of the product in the EU is not successful, the Company may take a non-cash
impairment charge with respect to Saphris/Sycrest, and such charge could be material.

The Neurosciences and Ophthalmology franchise also included the products Subutex/Suboxone for the
treatment of opiate addiction. In March 2010, Merck sold the rights to Subutex/Suboxone in nearly all markets back
to Reckitt Benckiser Group PLC (“Reckitt”). The rights to the products in most major markets reverted to Reckitt
on July 1, 2010; the remainder reverted to Reckitt during 2011 with the exception of some small markets. Sales of
Subutex/Suboxone were $111 million in 2010.

Oncology

Sales of Temodar (marketed as Temodal outside the United States), a treatment for certain types of brain
tumors, declined 12% in 2011 to $935 million from $1.1 billion in 2010, primarily reflecting generic competition in
Europe. Sales of Temodar were $188 million for the post-Merger period in 2009. Temodar lost patent exclusivity in
the EU in 2009. As previously disclosed, by agreement, one generic manufacturer has been given the right to enter
the U.S. market in August 2013. The U.S. patent and exclusivity periods otherwise will expire in February 2014.

Global sales of Emend, a treatment for chemotherapy-induced nausea and vomiting, increased 11% in
2011 to $419 million primarily reflecting growth in international markets. Sales of Emend increased 19% in 2010 to
$378 million driven by increases in the United States and due to the launch in Japan.

Other products in the Oncology franchise include among others, Intron A, an adjuvant treatment for
melanoma. Marketing rights for Caelyx for the treatment of ovarian cancer, metastatic breast cancer and Kaposi’s
sarcoma transitioned to J&J as of December 31, 2010. Sales of Caelyx were $284 million in 2010.

In March 2011, the FDA approved Sylatron, a once-weekly subcutaneous injection indicated for the
adjuvant treatment of melanoma with microscopic or gross nodal involvement within 84 days of definitive surgical
resection including complete lymphadenectomy.

Respiratory and Immunology

Worldwide sales of Singulair, a once-a-day oral medicine for the chronic treatment of asthma and for the
relief of symptoms of allergic rhinitis, grew 10% in 2011 reaching $5.5 billion driven by favorable pricing in the
United States, volume growth in Japan and in emerging markets, as well as the beneficial impact of foreign
exchange. Global sales of Singulair rose 7% to $5.0 billion in 2010 reflecting price increases and positive
performance in Japan. The patent that provides U.S. market exclusivity for Singulair expires in August 2012. The
Company expects that within the two years following patent expiration, it will lose substantially all U.S. sales of
Singulair, with most of those declines coming in the first full year following patent expiration. U.S. sales of
Singulair were $3.5 billion in 2011. In addition, the patent that provides market exclusivity for Singulair will expire
in a number of major European markets in February 2013 and the Company expects sales of Singulair in those
markets will decline significantly thereafter. The patent that provides market exclusivity for Singulair in Japan will
expire in 2016.

Sales of Remicade, a treatment for inflammatory diseases, were $2.7 billion in 2011, a decline of 2%
compared with 2010. Foreign exchange favorably affected sales performance by 5% in 2011. Prior to July 1, 2011,
Remicade was marketed by the Company outside of the United States (except in Japan and certain other Asian
markets). As a result of the agreement reached in April 2011 to amend the agreement governing the distribution
rights to Remicade and Simponi (as discussed above), effective July 1, 2011, Merck relinquished marketing rights
for these products in certain territories including Canada, Central and South America, the Middle East, Africa and

Asia Pacific. Sales performance in 2011 reflects these changes. In the Retained Territories, Remicade sales grew
13% in 2011, which reflect a 6% favorable impact from foreign exchange. Sales of Remicade were $431 million for
the post-Merger period in 2009. Simponi, a once-monthly subcutaneous treatment for certain inflammatory diseases
was approved by the EC in October 2009. In January 2011, Simponi was approved in the EU for use in combination
with methotrexate in adults with severe, active and progressive rheumatoid arthritis not previously treated with
methotrexate, having been shown to reduce the rate of progression of joint damage as measured by X-ray and to
improve physical function. Sales of Simponi were $264 million in 2011 and $97 million in 2010. The revenue
increase was driven by growth in the Retained Territories, due in part to ongoing launches.

Global sales of Nasonex, an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms,
were $1.3 billion in 2011, an increase of 5% compared with sales of $1.2 billion in 2010, driven largely by volume
growth in Japan and Latin America and the positive effect of foreign exchange, partially offset by volume declines
in the United States. Sales of Nasonex were $165 million for the post-Merger period in 2009.

Global sales of Clarinex (marketed as Aerius in many countries outside the United States), a
non-sedating antihistamine, were $621 million in 2011 compared with sales of $623 million in 2010. Sales of
Clarinex were $101 million for the post-Merger period in 2009.

Other products included in the Respiratory and Immunology franchise include among others, Arcoxia for
the treatment of arthritis and pain; Asmanex, an inhaled corticosteroid for asthma; Proventil Inhalation Aerosol for
the relief of bronchospasm; and Dulera Inhalation Aerosol, a combination medicine for the treatment of asthma. In
January 2012, Merck received a Complete Response Letter from the FDA for its supplemental New Drug
Application (“sNDA”) for Dulera, for the treatment of chronic obstructive pulmonary disease. The Company plans
to have further discussions with the FDA with regard to the Complete Response Letter.

Vaccines

The following discussion of vaccines does not include sales of vaccines sold in most major European
markets through Sanofi Pasteur MSD (“SPMSD”), the Company’s joint venture with Sanofi Pasteur, the results of
which are reflected in Equity income from affiliates (see “Selected Joint Venture and Affiliate Information” below).
Supply sales to SPMSD, however, are included.

Worldwide sales of Gardasil recorded by Merck grew 22% in 2011 to $1.2 billion driven by increased
vaccination of males 9 to 26 years of age in the United States, higher sales in conjunction with the launch in Japan
and growth in emerging markets, partially offset by lower government orders in Canada. Sales of Gardasil declined
12% to $988 million in 2010 driven largely by declines in the United States and Australia. Sales in 2009 include
$51 million as a result of government purchases for the CDC’s Strategic National Stockpile. Gardasil, the world’s
top-selling HPV vaccine, is indicated for girls and women 9 through 26 years of age for the prevention of cervical,
vulvar, vaginal and anal cancer caused by HPV types 16 and 18, certain precancerous or dysplastic lesions caused
by HPV types 6, 11, 16 and 18, and genital warts caused by HPV types 6 and 11. Gardasil is also approved in the
United States for use in boys and men 9 through 26 years of age for the prevention of anal cancer caused by HPV
types 16 and 18, anal dysplasias and precancerous lesions caused by HPV types 6, 11, 16 and 18, and genital warts
caused by HPV types 6 and 11. The Company is a party to certain third-party license agreements with respect to
Gardasil (including a cross-license and settlement agreement with GlaxoSmithKline). As a result of these
agreements, the Company pays royalties on worldwide Gardasil sales of 21% to 27% which vary by country and
are included in Materials and production costs.

In recent years, the Company has experienced difficulties in producing its varicella zoster virus (“VZV”)-
containing vaccines. These difficulties have resulted in supply constraints for ProQuad, Varivax and Zostavax. The
Company is manufacturing bulk varicella and is producing doses of Varivax and Zostavax.

A limited quantity of ProQuad, a pediatric combination vaccine to help protect against measles, mumps,
rubella and varicella, one of the VZV-containing vaccines, became available in the United States for ordering in the
second quarter of 2010. This supply has been exhausted and ProQuad is no longer available for ordering. Merck’s
sales of ProQuad were $34 million in 2011 and $134 million in 2010. ProQuad was not available for ordering in
2009 due to supply constraints.

Merck’s sales of Varivax, a vaccine to help prevent chickenpox (varicella), were $831 million in 2011,
$929 million in 2010 and $1.0 billion in 2009. Sales for 2010 and 2009 reflect $48 million and $64 million,

respectively, of revenue as a result of government purchases for the CDC’s Strategic National Stockpile. Merck’s
sales of M-M-R II, a vaccine to help protect against measles, mumps and rubella, were $337 million in 2011, $315
million in 2010 and $331 million in 2009. Sales of Varivax and M-M-R II were affected by the unavailability of
ProQuad as noted above.

Merck’s sales of RotaTeq, a vaccine to help protect against rotavirus gastroenteritis in infants and
children, grew 25% in 2011 to $651 million reflecting favorable public sector inventory fluctuations and growth in
emerging markets. Sales of RotaTeq declined 1% in 2010 to $519 million. Sales during 2010 benefited modestly
from a temporary competitor supply issue.

Sales of Pneumovax, a vaccine to help prevent pneumococcal disease, were $498 million for 2011, $376
million for 2010 and $346 million for 2009. The increase in 2011 as compared with 2010 was primarily due to
positive performance in the United States, due in part to favorable pricing, and in Japan.

Merck’s sales of Zostavax, a vaccine to help prevent shingles (herpes zoster), were $332 million in 2011,
$243 million in 2010 and $277 million in 2009. Sales in all of these years were affected by supply issues. The
Company has filled all backorders and resumed a normal supply schedule in the United States for Zostavax. The
Company is increasing its promotional efforts for Zostavax in the United States. No broad international launches or
immunization programs are currently planned for 2012.

In March 2011, the FDA approved an expanded age indication for Zostavax for the prevention of
shingles to include adults ages 50 to 59. Zostavax is now indicated for the prevention of herpes zoster in individuals
50 years of age and older.

Merck’s adult formulation of Vaqta, a vaccine against hepatitis A, is currently unavailable.

Women’s Health and Endocrine

Worldwide sales of Fosamax and Fosamax Plus D (marketed as Fosavance throughout the EU and as
Fosamac in Japan) for the treatment and, in the case of Fosamax, prevention of osteoporosis, declined 8% in 2011
to $855 million and decreased 16% in 2010 to $926 million. These medicines have lost market exclusivity in the
United States and have also lost market exclusivity in most major European markets. Accordingly, the Company is
experiencing sales declines within the Fosamax product franchise and the Company expects the declines to
continue.

Worldwide sales of NuvaRing, a contraceptive product, grew 12% to $623 million in 2011 from $559
million during 2010 driven by positive performance in the United States and internationally, including the beneficial
impact of foreign exchange. Sales of NuvaRing were $88 million for the post-Merger period in 2009.

Global sales of Follistim AQ (marketed in most countries outside the United States as Puregon), a
biological fertility treatment, were $530 million in 2011 compared with $528 million in 2010 reflecting growth in
emerging markets offset by declines in Europe due primarily to supply constraints. Sales of Follistim AQ were
$96 million for the post-Merger period in 2009. Puregon lost market exclusivity in the EU in August 2009.

Other products contained in the Women’s Health and Endocrine franchise include among others,

Implanon, a single-rod subdermal contraceptive implant; and Cerazette, a progestin only oral contraceptive.

The Company is currently experiencing difficulty manufacturing certain women’s health products. The

Company is working to resolve these issues.

In November 2011, Merck received a Complete Response Letter from the FDA for NOMAC/E2
(MK-8175A), which is being marketed as Zoely in the EU. The Company is planning to conduct an additional
clinical study requested by the FDA and update the application in the future.

Other

Animal Health

Animal Health includes pharmaceutical and vaccine products for the prevention, treatment and control of
disease in all major farm and companion animal species. Animal Health sales are affected by intense competition
and the frequent introduction of generic products. Global sales of Animal Health products grew 11% in 2011 to
$3.3 billion from $2.9 billion in 2010. Foreign exchange favorably affected global sales performance by 3% in
2011. The increase in sales was driven by positive performance among cattle, swine, poultry and companion animal
products. Global sales of Animal Health products were $494 million for the post-Merger period in 2009.

Consumer Care

Consumer Care products include over-the-counter, foot care and sun care products such as Claritin
non-drowsy antihistamines; Dr. Scholl’s foot care products; Coppertone sun care products; and MiraLAX, a
treatment for occasional constipation. Global sales of Consumer Care products increased 1% in 2011 to $1.8 billion
reflecting strong performance of Coppertone, offset by declines in Dr. Scholl’s and Claritin. Consumer Care
product sales were $149 million for the post-Merger period in 2009. Consumer Care product sales are affected by
competition and consumer spending patterns.

Alliances

AstraZeneca has an option to buy Merck’s interest in a subsidiary, and through it, Merck’s interest in
Nexium and Prilosec, exercisable in 2012, and the Company believes that it is likely that AstraZeneca will exercise
that option (see “Selected Joint Venture and Affiliate Information” below). If AstraZeneca exercises its option, the
Company will no longer record equity income from AZLP and supply sales to AZLP will decline substantially.

Costs, Expenses and Other

($ in millions)

Materials and production
Marketing and administrative(1)
Research and development(1)(2)
Restructuring costs
Equity income from affiliates
Other (income) expense, net

* 100% or greater

2011

Change

2010

Change

2009

$16,871
13,733
8,467
1,306
(610)
946

$40,713

-8% $18,396
5%
13,125
-24%
11,111
33%
985
4%
(587)
-27%
1,304

*
54%
90%
-40%
-74%
*

$ 9,019
8,543
5,845
1,634
(2,235)
(10,668)

-8% $44,334

$ 12,138

(1) Amounts for 2010 include a reclassification of $120 million of expenses from marketing and administrative to research and development.

(2) Includes $587 million and $2.4 billion of IPR&D impairment charges in 2011 and 2010, respectively.

Materials and Production

Materials and production costs were $16.9 billion in 2011, $18.4 billion in 2010, and $9.0 billion in
2009. Materials and production costs in 2009 include expenses related to the sale of legacy Schering-Plough and
MSP Partnership products only for the post-Merger period. Costs were unfavorably affected by $4.9 billion, $4.6
billion and $0.8 billion in 2011, 2010 and 2009, respectively, of expenses for the amortization of intangible assets
recorded in connection with mergers and acquisitions. Additionally, expenses in 2010 and 2009 include $2.0 billion
and $1.5 billion, respectively, of amortization of purchase accounting adjustments to Schering-Plough’s inventories
recognized as a result of the Merger. Costs in 2011 include an intangible asset impairment charge of $118 million.
The Company may recognize additional non-cash impairment charges in the future related to product intangibles
that were measured at fair value and capitalized in connection with mergers and acquisitions and such charges could
be material. Also included in materials and production were costs associated with restructuring activities which
amounted to $348 million, $429 million and $115 million in 2011, 2010 and 2009, respectively, including
accelerated depreciation and asset write-offs related to the planned sale or closure of manufacturing facilities.
Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected
in Restructuring costs as discussed below.

Gross margin was 64.9% in 2011 compared with 60.0% in 2010 and 67.1% in 2009. The amortization of
intangible assets and purchase accounting adjustments to inventories, as well as the restructuring and impairment
charges noted above had an unfavorable impact on gross margin of 11.4 percentage points in 2011, 15.2 percentage
points in 2010 and 8.8 percentage points in 2009. The gross margin improvement in 2011 as compared with 2010
reflects changes in product mix and manufacturing efficiencies, as well as a benefit from foreign exchange.

Marketing and Administrative

Marketing and administrative expenses were $13.7 billion in 2011, $13.1 billion in 2010 and $8.5 billion
in 2009. The increase in 2011 as compared with 2010 was due in part to the unfavorable effect of foreign exchange
and strategic investments made in emerging markets. Additionally, marketing and administrative expenses in 2011
include $162 million of expenses for the annual health care reform fee required as part of U.S. health care reform
legislation. Expenses for 2011 and 2010 include restructuring costs of $119 million and $144 million, respectively,
primarily related to accelerated depreciation for facilities to be closed or divested. Separation costs associated with
sales force reductions have been incurred and are reflected in Restructuring costs as discussed below. Expenses also
include $278 million and $379 million of acquisition-related costs in 2011 and 2010, respectively, consisting largely
of integration costs related to the Merger and for 2011 also consist of severance costs associated with the acquisition
of Inspire Pharmaceuticals, Inc., which are not part of the Company’s formal restructuring programs. Marketing and
administrative expenses in 2009, which include expenses related to Schering-Plough activities only for the post-
Merger period, include acquisition-related costs of $371 million largely comprised of transaction costs directly
related to the Merger (including advisory and legal fees) and integration costs.

Research and Development

Research and development expenses were $8.5 billion in 2011, $11.1 billion in 2010 and $5.8 billion in
2009. Expenses in 2009 include expenses related to Schering-Plough activities only for the post-Merger period.
Research and development expenses are comprised of the costs directly incurred by Merck Research Labs
(“MRL”), the Company’s research and development division that focuses on human health-related activities, which
were approximately $4.5 billion and $4.9 billion for 2011 and 2010, respectively. Also included in research and
development expenses are costs incurred by other divisions in support of research and development activities,
including depreciation, production and general and administrative, as well as certain costs from operating segments,
including Pharmaceutical, Animal Health and Consumer Care, which were $3.2 billion and $3.4 billion in the
aggregate for 2011 and 2010, respectively. Research and development expenses in 2011 were favorably affected by
cost savings resulting from restructuring activities.

Research and development expenses also include in-process research and development (“IPR&D”)
impairment charges and research and development related restructuring charges. During 2011, the Company
recorded IPR&D impairment charges of $587 million primarily for pipeline programs that were abandoned and
determined to have no alternative use, as well as for expected delays in the launch timing or changes in the cash
flow assumptions for certain compounds. In addition, the impairment charges related to pipeline programs that had
previously been deprioritized and were either deemed to have no alternative use during the period or were
out-licensed to a third party for consideration that was less than the related asset’s carrying value. During 2010, the
Company recorded $2.4 billion of IPR&D impairment charges. Of this amount, $1.7 billion related to the write-
down of the intangible asset for vorapaxar resulting from developments in the clinical program for this compound
(see “Research and Development” below). The remaining $763 million of IPR&D impairment charges in 2010 were
attributable to compounds that were abandoned and determined to have either no alternative use or were returned to
the respective licensor, as well as from expected delays in the launch timing or changes in the cash flow
assumptions for certain compounds. The Company may recognize additional non-cash impairment charges in the
future for the cancellation or delay of other pipeline programs that were measured at fair value and capitalized in
connection with mergers and acquisitions and such charges could be material. Research and development expenses
in 2011, 2010 and 2009 reflect $138 million, $428 million and $232 million, respectively, of accelerated
depreciation and asset abandonment costs associated with restructuring activities.

Share-Based Compensation

Total pretax share-based compensation expense was $369 million in 2011, $509 million in 2010 and
$415 million in 2009. At December 31, 2011, there was $391 million of total pretax unrecognized compensation

expense related to nonvested stock option, restricted stock unit and performance share unit awards which will be
recognized over a weighted average period of 1.8 years. For segment reporting, share-based compensation costs are
unallocated expenses.

Restructuring Costs

Restructuring costs were $1.3 billion, $985 million and $1.6 billion in 2011, 2010 and 2009, respectively.
Nearly all of the costs recorded in 2011 relate to the Merger Restructuring Program. Of the restructuring costs
recorded in 2010, $915 million related to the Merger Restructuring Program, $77 million related to the global
restructuring program initiated in 2008 (the “2008 Restructuring Program”) and the remaining activity related to the
legacy Schering-Plough program, which included a gain on the sale of a manufacturing facility. Of the restructuring
costs recorded in 2009, $1.4 billion related to the Merger Restructuring Program, $178 million related to the 2008
Restructuring Program and $39 million related to the legacy Schering-Plough program. In 2011, 2010 and 2009,
separation costs of $1.1 billion, $768 million and $1.4 billion, respectively, were incurred associated with actual
headcount reductions, as well as estimated expenses under existing severance programs for headcount reductions
that were probable and could be reasonably estimated. Merck eliminated 7,590 positions in 2011 (of which 6,880
related to the Merger Restructuring Program, 450 related to the 2008 Restructuring Program and 260 related to the
legacy Schering-Plough program), 12,465 positions in 2010 (of which 11,410 related to the Merger Restructuring
Program, 890 related to the 2008 Restructuring Program and the remainder to the legacy Schering-Plough program)
and 3,525 positions in 2009 (most of which related to the 2008 Restructuring Program). These position eliminations
are comprised of actual headcount reductions, and the elimination of contractors and vacant positions. Also
included in restructuring costs are curtailment, settlement and termination charges associated with pension and other
postretirement benefit plans, share-based compensation plan costs, as well as contract termination and shutdown
costs. For segment reporting, restructuring costs are unallocated expenses. Additional costs associated with the
Company’s restructuring activities are included in Materials and production, Marketing and administrative and
Research and development as discussed above.

Equity Income from Affiliates

Equity income from affiliates, which reflects the performance of the Company’s joint ventures and other
equity method affiliates, increased 4% in 2011 to $610 million primarily due to higher partnership returns from
AZLP. During 2011, the Company divested its interest in the JJMCP joint venture. In 2010, equity income from
affiliates declined to $587 million from $2.2 billion in 2009 as equity income from affiliates no longer included
equity income from the MSP Partnership, which became wholly owned by the Company as a result of the Merger or
from Merial Limited (“Merial”) due the sale of Merck’s interest in 2009. In addition, lower partnership returns from
AZLP, as well as lower equity income from SPMSD as a result of restructuring charges recorded by the joint
venture, also contributed to the decline in 2010. (See “Selected Joint Venture and Affiliate Information” below.)

Other (Income) Expense, Net

Other (income) expense, net was $946 million of expense in 2011 reflecting a $500 million charge
related to the resolution of the arbitration proceeding involving the Company’s rights to market Remicade and
Simponi (see Note 6 to the consolidated financial statements), a $136 million gain on the disposition of the
Company’s interest in the JJMCP joint venture (see Note 10 to the consolidated financial statements), and a $127
million gain on the sale of certain manufacturing facilities and related assets (see Note 5 to the consolidated
financial statements). Other (income) expense, net in 2010 was $1.3 billion of expense reflecting a $950 million
charge for the Vioxx Liability Reserve (see Note 12 to the consolidated financial statements), charges related to the
settlement of certain pending AWP litigation, and $200 million of exchange losses due to two Venezuelan currency
devaluations as discussed below, partially offset by $443 million of income recognized upon AstraZeneca’s asset
option exercise (see Note 10 to the consolidated financial statements) and $102 million of income recognized on the
settlement of certain disputed royalties. Other (income) expense, net was $10.7 billion of income in 2009 primarily
reflecting a $7.5 billion gain resulting from recognizing Merck’s previously held equity interest in the MSP
Partnership at fair value as a result of obtaining control of the MSP Partnership in the Merger, and a $3.2 billion
gain on the sale of Merck’s interest in Merial (see Note 10 to the consolidated financial statements).

As noted above, exchange losses for 2010 reflect losses relating to Venezuelan currency devaluations.
Effective January 11, 2010, the Venezuelan government devalued its currency from at BsF 2.15 per U.S. dollar to a
two-tiered official exchange rate at (1) “the essentials rate” at BsF 2.60 per U.S. dollar and (2) “the non-essentials
rate” at BsF 4.30 per U.S. dollar. In January 2010, the Company was required to remeasure its local currency
operations in Venezuela to U.S. dollars as the Venezuelan economy was determined to be hyperinflationary.
Throughout 2010, the Company settled its transactions at the essentials rate and therefore remeasured monetary
assets and liabilities utilizing the essentials rate. In December 2010, the Venezuelan government announced it
would eliminate the essentials rate and, effective January 1, 2011, all transactions would be settled at the official
rate of at BsF 4.30 per U.S. dollar. As a result of this announcement, the Company remeasured its December 31,
2010 monetary assets and liabilities at the new official rate.

Segment Profits

($ in millions)

Pharmaceutical segment profits
Other non-reportable segment profits
Other

Income before income taxes

2011

2010

2009

$ 25,617
2,703
(20,986)

$ 23,864
2,559
(24,770)

$15,715
1,735
(2,160)

$ 7,334

$ 1,653

$15,290

Segment profits are comprised of segment revenues less certain elements of materials and production
costs and operating expenses, including components of equity income or loss from affiliates and depreciation and
amortization expenses. For internal management reporting presented to the chief operating decision maker, Merck
does not allocate production costs, other than standard costs, research and development expenses or general and
administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for
monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and,
therefore, they are not included in segment profits. Also excluded from the determination of segment profits are the
arbitration settlement charge, the gain on the divestiture of the JJMCP joint venture and a gain on the sale of certain
manufacturing facilities and related assets recorded in 2011, the charge for the Vioxx Liability Reserve and the
income recognized on AstraZeneca’s asset option exercise both recognized in 2010 and the gains related to the MSP
Partnership and the disposition of Merial in 2009. In addition, the amortization of purchase accounting adjustments
and other acquisition-related costs, intangible asset impairment charges, restructuring costs, taxes paid at the joint
venture level and a portion of equity income are also excluded from the determination of segment profits.
Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other
miscellaneous income or expense. These unallocated items are reflected in “Other” in the above table. Also
included in “Other” are miscellaneous corporate profits, operating profits related to third-party manufacturing sales,
divested products or businesses, as well as other supply sales.

Pharmaceutical segment profits rose 7% in 2011 driven largely by the increase in sales and the gross
margin improvement discussed above. Pharmaceutical segment profits increased 52% in 2010 driven largely by the
inclusion of legacy Schering-Plough results.

Taxes on Income

The effective income tax rates of 12.8% in 2011, 40.6% in 2010 and 14.8% in 2009 reflect the impacts of
purchase accounting adjustments and restructuring costs, partially offset by the beneficial impact of foreign
earnings. In addition, the effective tax rate for 2011 also reflects a net favorable impact of approximately $700
million relating to the settlement of Merck’s 2002-2005 federal income tax audit, the favorable impact of certain
foreign and state tax rate changes that resulted in a net $270 million reduction of deferred tax liabilities on
intangibles established in purchase accounting, and the impact of the $500 million charge related to the resolution of
the arbitration proceeding with J&J. The 2010 effective tax rate reflects the impact of the Vioxx Liability Reserve
for which no tax impact was recorded, a $147 million charge associated with a change in tax law that requires
taxation of the prescription drug subsidy of the Company’s retiree health benefit plans which was enacted in the
first quarter of 2010 as part of U.S. health care reform legislation, and the impact of AstraZeneca’s asset option
exercise. These unfavorable impacts were partially offset by a $391 million tax benefit from changes in a foreign

entity’s tax rate, which resulted in a reduction in deferred tax liabilities on product intangibles recorded in
conjunction with the Merger, the favorable impact of the enactment of the tax extenders legislation, including the
R&D tax credit, and the favorable impact of foreign earnings and dividends from the Company’s foreign
subsidiaries. The 2009 effective tax rate reflects the favorable impacts of increased income in lower tax
jurisdictions, which includes the favorable impact of the MSP Partnership gain, and tax settlements, including the
previously announced settlement with the Canada Revenue Agency (“CRA”). These favorable impacts were
partially offset by the unfavorable effect of the gain on the sale of Merck’s interest in Merial which was taxable in
the United States at a combined federal and state tax rate of approximately 38.0%.

Net Income and Earnings per Common Share

Net income attributable to Merck & Co., Inc. was $6.3 billion in 2011, $861 million in 2010 and
$12.9 billion in 2009. EPS was $2.02 in 2011, $0.28 in 2010 and $5.65 in 2009. The increases in net income and
EPS in 2011 as compared with 2010 were primarily due to lower IPR&D impairment charges and amortization of
inventory step-up, lower legal reserves and the favorable impact of tax settlements, partially offset by the arbitration
settlement charge recorded in 2011 and the income recognized in 2010 on AstraZeneca’s asset option exercise. The
declines in net income and EPS in 2010 as compared with 2009 were primarily due to the gains recognized in 2009
associated with the MSP Partnership as a result of the Merger and the disposition of Merial, as well as incremental
costs in 2010 as a result of the Merger, including the recognition of a full year of amortization of intangible assets
and inventory step-up. In addition, IPR&D impairment charges, the charge to establish the Vioxx Liability Reserve,
lower equity income from affiliates and the impact of U.S. health care reform legislation also contributed to the
declines in net income and EPS in 2010 as compared with 2009. The income recognized on AstraZeneca’s asset
option exercise in 2010 benefited net income and EPS. EPS in 2009 was also affected by the dilutive impact of
shares issued in the Merger.

Non-GAAP Income and Non-GAAP EPS

Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance used by
that Merck is providing because management believes this information enhances investors’
management
understanding of the Company’s results. Non-GAAP income and non-GAAP EPS exclude certain items because of
the nature of these items and the impact that they have on the analysis of underlying business performance and
trends. The excluded items consist of acquisition-related costs, restructuring costs and certain other items. These
excluded items are significant components in understanding and assessing financial performance. Therefore, the
information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not in lieu of, net
income and EPS prepared in accordance with generally accepted accounting principles in the United States
(“GAAP”). Additionally, since non-GAAP income and non-GAAP EPS are not measures determined in accordance
with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the
calculation of similar measures of other companies.

Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior
management receives a monthly analysis of operating results that includes non-GAAP income and non-GAAP EPS
and the performance of the Company is measured on this basis along with other performance metrics. Senior
management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS.

A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:

($ in millions except per share amounts)

Pretax income as reported under GAAP
Increase (decrease) for excluded items:

Acquisition-related costs
Restructuring costs
Other items:

Arbitration settlement charge
Gain on disposition of interest in JJMCP joint venture
Gain on sale of manufacturing facilities and related assets
Vioxx Liability Reserve
Income recognized on AstraZeneca’s asset option exercise
Gain related to the MSP Partnership
Gain on disposition of interest in Merial
Other

Taxes on income as reported under GAAP

Estimated tax benefit (expense) on excluded items
Tax benefit from settlement of federal income tax audit
Tax benefit from foreign and state tax rate changes
Tax charge related to U.S. health care reform legislation

Non-GAAP net income

Less: Net income attributable to noncontrolling interests

2011

2010

2009

$ 7,334

$ 1,653

$15,290

5,939
1,911

9,403
1,986

2,830
1,981

500
(136)
(127)
—
—
—
—
5

—
—
—
950
(443)
—
—
—

15,426

13,549

942
1,697
700
270
—

3,609

671
1,798
—
391
(147)

2,713

11,817

10,836

120

121

—
—
—
—
—
(7,530)
(3,163)
—

9,408

2,268
(390)
—
—
—

1,878

7,530

123

Non-GAAP net income attributable to Merck & Co., Inc.

$11,697

$10,715

$ 7,407

EPS assuming dilution as reported under GAAP
EPS difference(1)

Non-GAAP EPS assuming dilution

2.02
1.75

0.28
3.14

5.65
(2.40)

3.77

3.42

3.25

(1) Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS, which may be different than the amount calculated by

dividing the impact of the excluded items by the weighted-average shares for the applicable year.

Acquisition-Related Costs

Non-GAAP income and non-GAAP EPS exclude the ongoing impact of certain amounts recorded in
connection with mergers and acquisitions. These amounts include the amortization of intangible assets and
inventory step-up, as well as intangible asset impairment charges. Also excluded are integration and transaction
costs associated with the Merger, as well as other costs associated with mergers and acquisitions, such as severance
costs which are not part of the Company’s formal restructuring programs. These costs are excluded because
management believes that these costs are not representative of ongoing normal business activities.

Restructuring Costs

including
Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions,
restructuring activities related to the Merger (see Note 4 to the consolidated financial statements). These amounts
include employee separation costs and accelerated depreciation associated with facilities to be closed or divested.
Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the
revised useful life of the site, based upon the anticipated date the site will be closed or divested, and depreciation

expense as determined utilizing the useful life prior to the restructuring actions. The Company has undertaken
restructurings of different types during the covered periods and therefore these charges should not be considered
non-recurring; however, management excludes these amounts from non-GAAP income and non-GAAP EPS
because it believes it is helpful for understanding the performance of the continuing business.

Certain Other Items

Non-GAAP income and non-GAAP EPS exclude certain other items. These items represent substantive,
unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the
qualitative aspect of their unusual nature and generally represent items that, either as a result of their nature or
magnitude, management would not anticipate that they would occur as part of the Company’s normal business on a
regular basis. Certain other items are comprised of the arbitration settlement charge, the gain on the disposition of
the Company’s interest in the JJMCP joint venture, the gain associated with the sale of certain manufacturing
facilities and related assets, the charge to establish the Vioxx Liability Reserve, the income recognized upon
AstraZeneca’s asset option exercise, the gain resulting from recognizing Merck’s previously held equity interest in
the MSP Partnership at fair value as a result of obtaining a controlling interest in the Merger and the gain on the
divestiture of Merck’s interest in Merial. Also excluded from non-GAAP income and non-GAAP EPS are the tax
benefits from the settlement of a federal income tax audit, the favorable impact of certain foreign and state tax rate
changes that resulted in a net reduction of deferred tax liabilities on intangibles established in purchase accounting,
and the tax charge related to U.S. health care reform legislation.

Research and Development

A chart reflecting the Company’s current research pipeline as of February 21, 2012 is set forth in Item 1.

“Business — Research and Development” above.

Research and Development Update

The Company currently has two candidates under regulatory review in the United States and

internationally.

MK-8669, ridaforolimus, is an investigational oral mTOR (mammalian target of rapamycin) inhibitor
under development for the treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable
response to chemotherapy that was accepted for standard review by the FDA in September 2011. In August 2011,
the European Medicines Agency accepted the marketing authorization application for ridaforolimus. As part of an
exclusive license agreement with ARIAD Pharmaceuticals, Inc. (“ARIAD”), Merck is responsible for the
development and worldwide commercialization of
ridaforolimus. ARIAD has an option to co-promote
ridaforolimus for sarcoma in the United States subject to execution of a co-promotion agreement.

MK-0653C, Zetia (ezetimibe) combined with atorvastatin was accepted for standard review by the FDA
for the treatment of primary or mixed hyperlipidemia. In response to notice of the Company’s filing, Pfizer Inc.
(“Pfizer”) filed a patent infringement lawsuit in U.S. District Court against the Company asserting certain Pfizer
patent rights in respect of atorvastatin. This lawsuit has the potential to bar FDA approval of the Company’s NDA
for up to 30 months (until January 6, 2014) subject to being shortened or lengthened by a court decision, or
shortened by an agreement between the parties.

MK-4305, suvorexant, is an investigational dual orexin receptor antagonist, a potential new approach to
the treatment of insomnia. Orexins are neuropeptides (chemical messengers) that are released by specialized
neurons in the hypothalamus region of the brain and are believed to be an important regulator of the brain’s sleep-
wake process. In February 2012, Merck announced that based on the positive results of two pivotal Phase III
efficacy trials for suvorexant, the Company anticipates filing an NDA for MK-4305 with the FDA in 2012.

MK-0822, odanacatib,

is an oral, once-weekly investigational

MK-0524A is a drug candidate that combines extended-release niacin and a novel flushing inhibitor,
laropiprant. MK-0524A has demonstrated the ability to lower LDL-cholesterol (“LDL-C” or “bad” cholesterol),
raise HDL-cholesterol (“HDL-C” or “good” cholesterol) and lower triglycerides with significantly less flushing
than traditional extended release niacin alone. High LDL-C, low HDL-C and elevated triglycerides are risk factors
associated with heart attacks and strokes. In April 2008, Merck received a Not-Approvable Letter from the FDA in
response to its NDA for MK-0524A. At a meeting to discuss the letter, the FDA stated that additional efficacy and
safety data were required and suggested that Merck wait for the results of the HPS2-THRIVE (Treatment of HDL to
Reduce the Incidence of Vascular Events) event-driven cardiovascular outcomes study, which is expected to be
completed in 2012. The Company anticipates filing an NDA with the FDA for MK-0524A in 2013. MK-0524A has
been approved in more than 60 countries outside the United States for the treatment of dyslipidemia, particularly in
patients with combined mixed dyslipidemia (characterized by elevated levels of LDL-C and triglycerides and low
HDL-C) and in patients with primary hypercholesterolemia (heterozygous familial and non-familial) and is
marketed as Tredaptive (or as Cordaptive in certain countries). Tredaptive should be used in patients in combination
with statins when the cholesterol lowering effects of statin monotherapy is inadequate. Tredaptive can be used as
monotherapy only in patients in whom statins are considered inappropriate or not tolerated.

MK-8175A, NOMAC/E2, which is being marketed as Zoely in the EU, is an oral contraceptive for use by
women to prevent pregnancy. NOMAC/E2 is a combined oral contraceptive tablet containing a unique monophasic
combination of two hormones: nomegestrol acetate, a highly selective, progesterone-derived progestin, and 17-beta
estradiol, an estrogen that is similar to the one naturally present in a women’s body. In November 2011, Merck
received a Complete Response Letter from the FDA for NOMAC/E2. The Company is planning to conduct an
additional clinical study requested by the FDA and update the application in the future.

MK-5348, vorapaxar,

is a thrombin receptor antagonist being developed for the prevention of
thrombosis, or clot formation, and the reduction of cardiovascular events. Vorapaxar has been evaluated in two
major clinical outcomes studies in different patient groups: TRACER (Thrombin Receptor Antagonist for Clinical
Event Reduction in Acute Coronary Syndrome), a clinical outcomes trial in patients with acute coronary syndrome,
and TRA-2P (Thrombin Receptor Antagonist in Secondary Prevention of atherothrombotic ischemic events), a
secondary prevention study in patients with a previous heart attack or ischemic stroke, or with documented
peripheral vascular disease. In February 2012, Merck announced the top-line results of the TRA-2P study. TRA-2P
showed that the addition of vorapaxar to standard of care significantly reduced the risk of the protocol-specified
primary endpoint of the composite of cardiovascular death, heart attack (myocardial infarction), stroke or urgent
coronary revascularization compared to standard of care. There was a significant increase in bleeding, including
intracranial hemorrhage, among patients taking vorapaxar in addition to standard of care, although there was a
lower risk of intracranial hemorrhage in patients without a history of stroke. The full results of TRA-2P will be
presented at
the American College of Cardiology Scientific Sessions in March 2012. In November 2011,
researchers presented results from the TRACER outcomes study at the American Heart Association Scientific
Sessions, and the results have been published. TRACER did not achieve its primary endpoint. In January 2011,
Merck and the external study investigators announced that the combined DSMB for the two clinical trials had
reviewed the available safety and efficacy data, and recommended that patients in the TRACER trial discontinue
study drug and investigators close out the study. Merck will review the data from both TRA-2P and TRACER with
the investigators and other outside experts to help better understand the profile of this investigational medicine in
specific patient populations and to determine next steps, including potential regulatory filings.